Basel I

Loading the player...

What is 'Basel I'

Basel I is 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.

BREAKING DOWN '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 II

    A set of banking regulations put forth by the Basel Committee ...
  2. Basel III

    A comprehensive set of reform measures designed to improve the ...
  3. Basel Accord

    A set of agreements set by the Basel Committee on Bank Supervision ...
  4. Tier 1 Capital

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

    The difference between the value of a bank's assets and its liabilities. ...
  6. Tier 2 Capital

    One of two categories by which a bank's capital is divided. Tier ...
Related Articles
  1. Managing Wealth

    The Legacy of Basel I

    Basel I refers to a set of international banking rules enacted in 1988 by the Basel Committee on Bank Supervision.
  2. Managing Wealth

    How Basel 1 Affected Banks

    This 1988 agreement sought to decrease the potential for bankruptcy among major international banks.
  3. Markets

    What is Basel II?

    Basel II refers to the second of a set of international banking rules passed by the Basel Committee on Banking Supervision.
  4. Markets

    Explaining Risk-Weighted Assets

    Risk-weighted assets is a banking term that refers to a method of measuring the risk inherent in a bank’s assets, which is typically its loan portfolio.
  5. Markets

    What is Basel III?

    The purpose of the Basel accords is to improve the worldwide bank regulatory framework.
  6. Managing Wealth

    Understanding The Basel III International Regulations

    The Basel III regulations mark a drastic reform in international banking. But how do they impact the future's investment landscape?
  7. Markets

    Explaining Tier 1 Capital

    Tier 1 capital refers to the core capital a bank must maintain in relation to its assets.
  8. Managing Wealth

    Using Economic Capital To Determine Risk

    Discover how banks and financial institutions use economic capital to enhance risk management.
  9. Markets

    Calculating Tier 1 Common Capital Ratio

    The tier 1 common capital ratio compares a financial institution’s core equity capital to its risk-weighted assets.
  10. Managing Wealth

    Banking Stress Tests: Would Yours Pass?

    In weaker economic times, banks may be tested by the government to see how safe they are.
RELATED FAQS
  1. What percent of capital should banks hold relative to its risk weighted assets?

    Learn what percentage of capital banks must hold under the capital adequacy ratio as set forth in Basel III, and understand ... Read Answer >>
  2. How are risk weighted assets used to calculate the solvency ratio in regulatory capital ...

    Learn how risk-weighted assets are used to determine solvency ratio requirements under the Basel III accord, and see how ... Read Answer >>
  3. What are some of the well-known no-load funds?

    Find out more about the capital to risk-weighted assets ratio, what the ratio measures and the formula used to calculate ... Read Answer >>
  4. Why should investors care about risk weighted assets of a bank?

    Discover why investors should care about risk-weighted assets. Risk-weighted assets reflect how much of a bank's asset base ... Read Answer >>
  5. What are the Basel III rules, and how does it impact my bank investments?

    Learn about Basel III rules and how they impact investors in the banking sector. They have made banks less procyclical, forcing ... Read Answer >>
  6. If my brother-in-law, who works at a pharmaceutical company, tells me about his research ...

    Discover what tier 1 capital measures about a bank. Tier 1 capital levels were mandated by Basel III following the financial ... Read Answer >>
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center