Basel I
 |
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 Definitions
Articles Of Interest
-
Using Economic Capital To Determine Risk
Discover how banks and financial institutions use economic capital to enhance risk management. -
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. -
What Is The Bank For International Settlements?
Get the scoop on the structure and functions of the oldest global financial institution. -
How Basel 1 Affected Banks
This 1988 agreement sought to decrease the potential for bankruptcy among major international banks. -
Behavioral Bias - Cognitive Vs. Emotional Bias In Investing
We all have biases. The key to better investing is to identify those biases and create rules to minimize their effect. -
Why Your Pension Plan Has Sovereign Debt In It
One type of security pensions tend to invest in is sovereign debt, or debt issued by a government. -
Trading Is Timing
Learn how to make gains even if you don't get in at the right time. -
How To Profit From Risk
CDs may look safe and attractive but considering most pay a rate that is less than the rate of inflation seniors today risk actually losing money with CDs. We need to be our own money managers ... -
Investing In REITs Instead Of Property
Learn why this one particular REIT is a better investment than holding physical property in your retirement portfolio. -
Examples Of Asset/Liability Management
In its simplest form, asset/liability management entails managing assets and cash inflows to satisfy various obligations; however, it's rarely that simple.
