Next video:
Loading the player...

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.

Related Articles
  1. Investing

    How Basel 1 Affected Banks

    This 1988 agreement sought to decrease the potential for bankruptcy among major international banks.
  2. Investing

    What is Basel III?

    The purpose of the Basel accords is to improve the worldwide bank regulatory framework.
  3. 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.
  4. Personal Finance

    Explaining Tier 1 Capital

    Tier 1 capital refers to the core capital a bank must maintain in relation to its assets.
  5. Investing

    Using Economic Capital To Determine Risk

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

    Calculating the Tier 1 Capital Ratio

    The Tier 1 capital ratio is a measure of a depository financial institution’s financial health and capital adequacy.
  7. Insights

    The New Global Banking Regulations To Avert Future Crisis

    These are the types of policies that are being developed to minimize the risks posed to the global financial system by banks which are too big to fail.
  8. Personal Finance

    What's Tier 2 Capital?

    Tier 2 capital is a category of supplementary capital that banks hold.
  9. Personal Finance

    Explaining the Tier 1 Leverage Ratio

    The Tier 1 leverage ratio measures a bank’s core capital against its total assets.
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. Backward Integration

    A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it ...
  3. Pari-passu

    A Latin phrase meaning "equal footing" that describes situations where two or more assets, securities, creditors or obligations ...
  4. Interest Rate Swap

    An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for ...
  5. Custodian

    A financial institution that holds customers' securities for safekeeping so as to minimize the risk of their theft or loss. ...
  6. Supply Chain

    The network created amongst different companies producing, handling and/or distributing a specific product. Specifically, ...
Trading Center