Responding to criticisms that the initial draft of the proposed update was too stringent, and risked increasing the compliance burden on banks to an unacceptable level, the committee of regulators which met at the Bank for International Settlements in Basel, Switzerland revealed that they had opted for a tiered minimum capital and risk management framework.

Basel II improves on the original version of the accord by increasing the sensitivity to the risk of credit losses generally by requiring higher levels of capital for those borrowers thought to present higher levels of credit risk, and vice versa.

In addition, the agreement recognises the necessity of exercising effective supervisory review of banks’ internal assessments of their overall risks to ensure that bank management is exercising sound judgement and has set aside adequate capital for these risks, and leverages the ability of market discipline to motivate prudent management by enhancing the degree of transparency in banks’ public reporting.

Speaking following Saturday's meeting, Jaime Caruana, Chairman of the Basel Committee on Banking Supervision and Governor of the Bank of Spain observed that:

“The new Framework represents an unparalleled opportunity for banks to improve their risk measurement and management systems. It builds on and consolidates the progress achieved by leading banking organisations and provides incentives for all banks to continue to strengthen their internal processes. By motivating banks to upgrade and improve their risk management systems, business models, capital strategies and disclosure standards, the Basel II Framework should improve their overall efficiency and resilience.”