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

Basel I’s objective was to improve banking stability through strong rules and supervision during a time of increasing bank failures and bankruptcy risks. It weighed the capital a bank owned to the credit risk it faced.

Basel I defined the bank capital ratio, which requires banks to maintain a minimum ratio of total capital to risk-weighted assets of 8 percent.

Basel I outlined two tiers of bank capital. Tier 1, or a bank’s core capital, includes issued stock and declared reserves. Tier 2 is a bank’s supplementary capital, including gains on investments, long-term debt and hidden reserves.

Basel I also created a bank asset classification system, which grouped a bank’s assets into five risk categories.

Basel I was the first combined international effort to assess risk relative to bank capital. Its calculations proved too simplified in the long run, but it paved the way for Basel II, which sought improved risk assessment amid ongoing innovation in the financial industry.

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