Reasons for Basel II The Federal Reserve believes very strongly that prudent and risk-sensitive regulatory capital requirements are integral to ensuring that individual banks and the financial system have an adequate cushion against losses, particularly during times of financial or economic stress.
This strong belief is what motivated the Federal Reserve in the late 1980s to play a leading role in both negotiating the first international capital accord – Basel I – and supporting implementation of the accord in the United States. In light of our role in developing Basel I, let me explain why the Federal Reserve now supports moving to Basel II.