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. Personal Finance

    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.
  2. Investing

    How Basel 1 Affected Banks

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

    Using Economic Capital To Determine Risk

    Discover how banks and financial institutions use economic capital to enhance risk management.
  4. Small Business

    Understanding the Capital Adequacy Ratio

    The capital adequacy ratio (CAR) is an international standard that measures a bank’s risk of insolvency from excessive losses. Currently, the minimum acceptable ratio is 8%. Maintaining an acceptable ...
  5. Insights

    Banks Could Unlock Over $200 Billion for Investors

    Passage of a recently introduced Republican bill could free up $200 billion in bank capital.
  6. Personal Finance

    How Will Bank Regulation Affect British Banks?

    We look at the proposed changes to Britain's banking system, and see whether it will be able to stay competitive.
  7. Insurance

    Explaining the Liquidity Coverage Ratio

    The liquidity coverage ratio requires banks and other financial institutions to hold enough cash and liquid assets on hand to weather market stress.
  8. Tech

    What Are the Biggest Risks Associated With Banks Today?

    Evolving mechanisms and techniques of cybercrime have become the most severe risk associated with banks today.
  9. Financial Advisor

    Why Banks Don't Need Your Money to Make Loans

    Contrary to the story told in most economics textbooks, banks don't need your money to make loans, but they do want it to make those loans more profitable.
Hot Definitions
  1. Drawdown

    The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted ...
  2. Inverse Transaction

    A transaction that can cancel out a forward contract that has the same value date.
  3. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
  4. Solvency

    The ability of a company to meet its long-term financial obligations. Solvency is essential to staying in business, but a ...
  5. Dilution

    A reduction in the ownership percentage of a share of stock caused by the issuance of new stock. Dilution can also occur ...
  6. Agency Problem

    A conflict of interest inherent in any relationship where one party is expected to act in another's best interests. The problem ...
Trading Center