Basel II was developed in 2004 with full implementation required by the BCBS by 2008, its aim was to be a more sophisticated system than Basel I having a more sophisticated and nuanced approach to calculating risk weighted assets for credit risk, using methodologies defined by the regulator, as well as allowing banks to determine their own internal calculations of credit risk weighted assets.

Basel II also introduced risk weighted asset requirements for market risk and operational risk. These risks together with credit risk are referred to as pillar one, risks that all banks face. Pillar two of Basel two introduced the need for banks and other financial institutions to carry out ongoing assessments of the adequacy of the capital they were holding to meet all of the risks they faced, whether included in pillar one or not. Lastly, pillar three required banks to increase the amount of public disclosure regarding the risks they faced and how these risks were quantified and managed internally. Pillar three effectively delegated some of the regulation responsibility to the stock market and the credit market by the rating agencies to actually assess the information that is publicly disclosed by banks.