The purpose of Basel II, which was initially published in June 2004, is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face.

The aims of Basel II are to:

1. Ensure that capital allocation is more risk sensitive;
2. Separate operational risk from credit risk, and quantifying both;
3. Attempt to align economic and regulatory capital more closely to reduce the scope for regulatory arbitrage.

They are called the Basel Accords as the Basel Committee on Banking Supervision (BCBS) maintains its secretariat at the Bank of International Settlements in Basel, Switzerland and the committee normally meets there.

Basel I required lenders to calculate a minimum level of capital based on a single risk weight for each of a limited number of asset classes, eg, mortgages, consumer lending, corporate loans, exposures to sovereigns. Basel II goes well beyond this, allowing some lenders to use their own risk measurement models to calculate required regulatory capital whilst seeking to ensure that lenders establish a culture with risk management at the heart of the organisation up to the highest managerial level. Source: CML