The correct answer is Option 4: International standards for measuring the adequacy of a bank`s capital.

Basel II refers to the second set of international banking standards developed by the Basel Committee on Banking Supervision (BCBS). The BCBS is a committee of banking supervisory authorities that was established by the central bank governors of the Group of Ten countries in 1974. Its primary objective is to enhance the stability of the international banking system.

Basel II was introduced as an update to the original Basel Accord, known as Basel I, which focused on setting minimum capital requirements for banks. Basel II, on the other hand, expanded upon this by introducing a more comprehensive framework for assessing the adequacy of a bank`s capital based on various risk factors. It aimed to align capital requirements more closely with the risks that banks face.

Under Basel II, banks were required to classify their assets into different risk categories, such as credit risk, market risk, and operational risk. Each category had specific methodologies for determining the amount of capital that banks needed to hold as a buffer against potential losses. The framework provided more risk-sensitive approaches compared to the standardized rules of Basel I.

The introduction of Basel II aimed to promote a more risk-aware banking system and improve the stability of individual banks as well as the overall financial system. It also encouraged banks to develop more sophisticated risk management practices and internal models to assess and manage their risks.

It is important to note that Basel II has been superseded by Basel III, which was introduced in response to the global financial crisis of 2008. Basel III further strengthened the capital and liquidity requirements for banks and introduced additional measures to address systemic risks.

In summary, Basel II is an international regulatory framework that establishes standards for measuring the adequacy of a bank`s capital. It focuses on aligning capital requirements with the risks faced by banks and promotes a more risk-sensitive approach to banking regulation.