Central bank governors and the heads of bank supervisory authorities in the Group of Ten (G10) countries met on 26 June 2004 and endorsed the publication of the International Convergence of Capital Measurement and Capital Standards the new capital adequacy framework commonly known as Basel II. The Basel Committee on Banking Supervision (BCBS), drafted the text of Basel II. The Basel II Framework sets out the details for adopting more risk-sensitive minimum capital requirements for banking organisations. The new framework reinforces these risk-sensitive requirements by laying out principles for banks to assess the adequacy of their capital and for supervisors to review such assessments to ensure banks have adequate capital to support their risks. It also seeks to strengthen market discipline by enhancing transparency in banks' financial reporting.

The overarching goal for the Basel II Framework is to promote the adequate capitalisation of banks and to encourage improvements in risk management, thereby strengthening the stability of the financial system. This goal will be accomplished through the introduction of “three pillars” that reinforce each other and that create incentives for banks to enhance the quality of their control processes. The first pillar represents a significant strengthening of the minimum requirements set out in the 1988 Accord, while the second and third pillars represent innovative additions to capital supervision. This Graphic is a representation of the "three pillars". These are: Pillar 1 - Minimum Capital Requirements, Pillar 2- Supervisory Review, Pillar 3- Market Discipline

“Pillar 1” of the new capital framework revises the 1988 Accord's guidelines by aligning the minimum capital requirements more closely to each bank's actual risk of economic loss. “Pillar 2” of the new capital framework 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. “Pillar 3” leverages the ability of market discipline to motivate prudent management by enhancing the degree of transparency in banks' public reporting. It sets out the public disclosures that banks must make that lend greater insight into the adequacy of their capitalisation. ( Source: Bank of International Settlements)