Basel Accord

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Basel Accord

Agreement concluded among country representatives in 1988 in Switzerland to develop standardized risk-based capital requirements for banks across countries.

Basel Accord

An agreement on international banking regulations dealing with how banks handle risk. The Basel Accord focuses mainly on credit risk; it divides banks' assets into five categories according to how risky they are. The five categories are assets with no risk, 10% risk, 20%, 50% and 100%. All banks conducting international transactions are required under the Basel Accord to hold assets with no more than 8% aggregated risk. The Accord was promulgated in 1988.Banks in most G-10 countries have implemented it since the early 1990s. It is now considered largely outdated and is in the process of being replaced by Basel II. It is also called Basel I.
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Interestingly, on a Basel I basis, BAC reported that RWA levels remained essentially flat quarter over quarter.
"We have applied most of the recommendations of Basel I and II over the past few years and we intend to do the same in Basel III with the help of the regulatory
Since Basel I was introduced it has broadly been adapted in over 100 countries; however, over time, it has became clear that, with increasingly sophisticated products and markets, the risk to which a bank was exposed cannot be accurately assessed with the black-and-white rules of Basel I, so the 1999 Basel Committee introduced Basel II in response to this.
The Reserve Bank's disclosure requirements under Basel II include more comprehensive disclosure of risk information compared to the earlier Basel I requirements.
Under Basel I, banks were required to hold capital equal to 8% of the balance of all assets.
These current standards are based upon the 1988 Basel Capital Accord, also known as Basel I.
By the start of 2007, Basel II is scheduled to begin replacing the original Basel I Accord adopted in 1988.
One customer on the Bergli Birsig tour recently told us, "After almost three years in Basel I knew a third of what I've just heard on a one-hour tour".
Implementation had often been uneven in the past, notably in the US, where the Basel II rules only came into effect in 2008, accompanied by prolonged capital floors based on Basel I. Many Basel members have had their own interpretation of the rules, which in some cases differed widely.
The FDIC suggests bluntly that the public interest is best served by retaining some sort of minimum capital requirement that is, Basel I. The anti-Basel II tendency led by the FDIC believes, quite correctly, that the new rules will leave the big banks relatively undercapitalized and give them an unfair advantage over the community and regional lenders.
The Basel Capital Accord, now familiarly known as Basel I, is widely viewed as having achieved its principal objectives of promoting financial stability and providing an equitable basis for competition among internationally active banks.