Basel I

As Basel I: the rules of the Basel Committee on the first Basle Capital Accord of 1988 ( Basel Accord also ) are referred to.

Topics

The occasion was the concern of the central bank governors of the G10 countries that the equity of the world's major banks had fallen to a dangerous level. The concern was triggered by the collapse of the Herstatt Bank. What is needed is the equity to cover losses and to ensure solvency. Due to a prolonged struggle, the displacement banks built their business but without adequate capital backing. As an increasingly then occurred bankruptcies of borrowers, banks' equity fell from. To reduce the risk of insolvency of the banks and the potential expense of depositors in the bankruptcy of the bank, the agreements thus aimed at securing adequate capital resources and the creation of common international competition. These agreements were international standard in the 90s and are now recognized in over 100 countries. The facilities are monitored by the respective banking supervision.

Content

Due to the currently valid Accord lending practices of banks is limited. The maximum volume of loans is thereby linked with the available equity.

A bank's capital is roughly divided into two classes:

The regulations provide that banks in proportion to their risk-weighted assets must hold at least 8 % equity. The assets are measured varies depending on the risk level, as well as the equity must be at least half of the capital class 1. Receivables are classified into four risk weights, depending on the borrower category.

The capital requirement is calculated accordingly:

An important change took place in 1996 when the Accord was added to the market risk. It takes into account changes in interest rates and equity price risk in the trading book; Foreign currency and commodity risk in the entire institution. Two methods for measuring the market risk have been defined, a standard method, and a value based on internal stochastic models approach.

Criticism

At Basel I criticize the fact that methods for reducing the risk will not be considered and carried out the differentiation of credit risk adequately. This criticism led to the re-recording of the negotiations in 1999, and the new Basel Capital Accord Basel II