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Basel I – Basel Capital Accord : Requirements & Compliance Strategies

Basel I, officially known as the Basel Capital Accord, was introduced in 1988 by the Basel Committee on Banking Supervision (BCBS) as the world’s first global regulatory framework for bank capital adequacy. The primary goal of Basel I was to strengthen the stability and soundness of the international banking system by establishing a minimum capital requirement for internationally active banks. The Accord set the foundation for future regulatory reforms, including Basel II and Basel III.

Who It Applies To

While initially aimed at banks operating internationally, many countries adopted Basel I standards for their domestic institutions to ensure a level playing field and market stability.

Key Requirements

1. Capital Ratio Standard

2. Risk-Weighted Asset System

3. Off-Balance Sheet Exposures

4. Supervisory Review and Disclosure

Example

Practical Impact

Compliance Strategies

Penalties for Non-Compliance

Recent Updates and the Transition to Basel II/III

Comparison Table: Basel I vs. Later Basel Accords

AreaBasel I (1988)Basel II (2004)Basel III (2010–present)
Capital Ratio8% (Total)8%, with refined RWAs8% + capital buffers
Capital TypesTier 1 & Tier 2Tier 1, Tier 2, hybrid, with limitsCET1 focus, new Tier 1 definitions
Risk SensitivitySimplified risk weightsMore granular, ratings-basedEnhanced, includes liquidity/ESG
Off-Balance SheetSimple credit conversionMore comprehensive, complexImproved, includes liquidity
Supervisory ReviewYes, but basicMore rigorous (Pillar 2)Very rigorous, disclosure focus

Challenges for Banks

Looking Ahead

Basel I established the foundation of modern global bank regulation. While largely superseded by more advanced standards for internationally active banks, its core requirements continue to influence prudential regulation, especially in emerging markets and for smaller institutions. As banks worldwide have transitioned to Basel III, legacy lessons from Basel I remain relevant in capital adequacy, supervisory discipline, and risk transparency.

Useful Resources

FAQs

Q: What was the main purpose of Basel I?
A: To establish internationally agreed minimum capital requirements for banks, promoting stability and soundness in the global financial system.

Q: Which institutions were required to comply with Basel I?
A: Initially, international banks in G10 countries, but the standard was widely adopted across advanced and many developing economies.

Q: What was the minimum capital requirement?
A: 8% of risk-weighted assets, with at least half in core (Tier 1) capital.

Q: Is Basel I still in force?
A: Basel I has largely been replaced by Basel II and III for major banks, but some jurisdictions and smaller banks may still use Basel I or its risk-weighting approach.

Q: What are “risk-weighted assets” under Basel I?
A: Bank assets assigned different weightings (0%–100%) depending on credit risk, used to calculate required capital.

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