This chapter presents a detailed overview on the Basel II Capital Accord. The capital accord consists of three mutually reinforcing pillars. Pillar 1 defines the minimum capital requirements for credit, market, and operational risk. Pillar 2 describes the supervisory review process to verify whether the bank holds sufficient capital to cover all its risks. Pillar 3 defines the market disclosure to catalyze prudential risk management and sufficient capitalization. The new capital accord has important implications for the bank's information and communication technology: data needs to be collected on various levels: risk information, exposure, loss measures; computation engines calculate the risk on transactions and portfolios; data needs to be transferred correctly between different levels; and risk reports need to be communicated to regulators, senior management and the financial markets. The Basel II rules make capital requirements more risk sensitive, which will impact, amongst others, the credit pricing, and capital needs for banks with different risk profiles. The chapter concludes with a discussion on future evolutions.
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