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 It is now considered largely outdated and is in the process of being replaced by Basel II.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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Focusing on ways to enhance the resilience of the banking sector in the UAE, the areas of discussion of the Risk Management Committee have included the Basle Accords, large exposures and risk concentration, and a proposal recommending the UAE to be adopted as a netting jurisdiction.
Lee, The Basle Accords As Soft Law: Strengthening International Banking Supervision, 39 VA.
"The Basle Accords have become the standard for international financial services regulations throughout the industrialized world.
The current Basle Accord of 1988,(7) which has been adopted by the G-10 nations(8) and most other industrialized countries,(9) is the subject of Part III, which also details the current regulations and the policy considerations that led to them.
The current capital adequacy regulation is a codified version of the 1988 Basle Accord.(92) When outlining the current capital adequacy rules, this Comment will cite to the 1988 Accord and U.S.
Under the Basle Accord, the general rule is that all banks must maintain a ratio of 8% capital to the total amount of risk-weighted assets and credit-converted OBS items.(109) More specifically, capital is divided into Tier 1 and Tier 2.
The bank must have an 8% ratio or higher to satisfy the standards of the Basle Accord.
In particular, banks contemplating significant expansion proposals are expected to maintain strong capital levels substantially above the minimum ratios and should not allow significant diminution of financial strength below these strong levels to fund their expansion plans.(124) Thus, the Basle Accord resulted in an international standard that set a baseline capital cushion for commercial banks, but also provided subscribing nations with a significant degree of discretion to impose additional requirements.
Once the Committee's members agreed on the technical risk-weighted methods forming the Basle Accord, each representative bore the responsibility of incorporating the new standards into the regulations of his home country.(125) In the United States, the Federal Reserve immediately issued regulations mirroring the Accord.(126) At the time of their adoption, the standards, which were converted into new regulations, encountered little resistance from the U.S.
An informal process exists whereby "Basle members challenge non-Basle members, whose banks want to do business in Basle members' countries, to adopt the Basle Accord's principles."(136) Within a few short years, the Basle standards had spread to the banks of non-G-10 countries.
Hong Kong, which has nearly always been an international financial center, adopted the Basle Accord after the Hong Kong Monetary Authority ("HKMA") decided incorporating the new standards would be beneficial to the state.(138) In 1997, when the Asian financial crisis was at its pinnacle, the International Monetary Fund(139) suggested to some countries that adoption of the Basle standards would help bring stability to their national banking systems.
Second, the Wylie amendment would violate the Basle accords, a global capital standard that puts housing in the higher risk category.