Basel I

AAA

DEFINITION of 'Basel I'

A set of international banking regulations put forth by the Basel Committee on Bank Supervision, which set out the minimum capital requirements of financial institutions with the goal of minimizing credit risk. Banks that operate internationally are required to maintain a minimum amount (8%) of capital based on a percent of risk-weighted assets.

INVESTOPEDIA EXPLAINS 'Basel I'

The first accord was the Basel I. It was issued in 1988 and focused mainly on credit risk by creating a bank asset classification system. This classification system grouped a bank's assets into five risk categories:

0% - cash, central bank and government debt and any OECD government debt
0%, 10%, 20% or 50% - public sector debt
20% - development bank debt, OECD bank debt, OECD securities firm debt, non-OECD bank debt (under one year maturity) and non-OECD public sector debt, cash in collection
50% - residential mortgages
100% - private sector debt, non-OECD bank debt (maturity over a year), real estate, plant and equipment, capital instruments issued at other banks

The bank must maintain capital (Tier 1 and Tier 2) equal to at least 8% of its risk-weighted assets. For example, if a bank has risk-weighted assets of $100 million, it is required to maintain capital of at least $8 million.

RELATED TERMS
  1. Basel III

    A comprehensive set of reform measures designed to improve the ...
  2. Basel Committee On Bank Supervision

    A committee established by the central bank governors of the ...
  3. Bank For International Settlements ...

    An international organization fostering the cooperation of central ...
  4. Tier 1 Capital

    A term used to describe the capital adequacy of a bank. Tier ...
  5. Tier 2 Capital

    One of two categories by which a bank's capital is divided. Tier ...
  6. Organization for Economic Cooperation ...

    A group of 30 member countries that discuss and develop economic ...
RELATED FAQS
  1. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  2. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  3. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
  4. How can I cancel a bank draft that I have purchased?

    It is not commonly possible to cancel or stop payment on a bank draft since it, in effect, represents a transaction that ... Read Full Answer >>
  5. How does investment banking differ from commercial banking?

    Investment banking and commercial banking are two primary segments of the banking industry. Investment banks facilitate the ... Read Full Answer >>
  6. What percentage of a diversified portfolio should large cap stocks comprise?

    The percentage of a diversified investment portfolio that should consist of large-cap stocks depends on an individual investor's ... Read Full Answer >>
Related Articles
  1. Personal Finance

    Using Economic Capital To Determine Risk

    Discover how banks and financial institutions use economic capital to enhance risk management.
  2. Personal Finance

    Is Your Bank On Its Way Down?

    Find out how the Tier 1 capital ratio can be used to tell if your bank is going under.
  3. Personal Finance

    What Is The Bank For International Settlements?

    Get the scoop on the structure and functions of the oldest global financial institution.
  4. Personal Finance

    How Basel 1 Affected Banks

    This 1988 agreement sought to decrease the potential for bankruptcy among major international banks.
  5. Professionals

    Advisors: Start Coaching Clients from the Start

    Behavioral coaching is vital to help investors stick to plan during market turbulence. Start coaching early and maintain it through the relationship.
  6. Mutual Funds & ETFs

    5 Disadvantages of Mutual Funds Compared to ETFs

    In the mutual funds vs. exchange-traded funds debate, ETFs have some clear advantages.
  7. Investing

    Why We Need Antitrust Laws

    A look at antitrust laws in the United States and the many anticompetitive practices they safeguard against.
  8. Trading Strategies

    Adjust Market Strategies To Elevated Risk

    Improve returns by adapting trading strategies to changing market conditions.
  9. Trading Strategies

    Pros And Cons Of Paper Trading

    Most market novices should paper trade for a considerable amount of time, despite key drawbacks.
  10. Savings

    Best Banks to Stash Your Million Dollars

    Get the richest perks and red carpet treatment for you and your money from these financial institutions.

You May Also Like

Hot Definitions
  1. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  2. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  3. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  4. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  5. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  6. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!