Basle Capital Convergence Agreement Signatories

The core capital-to-capital tier 1 /all RWA Basel I ratio, i.e. the 1988 Basel Agreement, focuses primarily on credit risk and the appropriate asset risk weighting. Bank assets were divided into five categories per credit risk, with risk weights of 0% (for example. B, liquidity, gold bars, real estate liabilities such as treasury bills), 20% (securitizations such as mortgage-backed securities (MBS) with the highest AAA rating), 50% (municipal yield bonds, Residential Mortgages), 100% (. B for example, most corporate debt) and some of the highest AAA-rated assets, 50% (communal income bonds, residential mortgages), 100% (. B for example, most corporate debt) and some unceded assets. Banks with an international presence are required to hold capital of up to 8% of their risk-weighted assets. This document is the original text of the Basel Capital Agreement, which sets out the agreement between G10 central banks for the application of common minimum capital standards to their banking industry, which is to be reached by the end of 1992. The standards are aimed almost exclusively at credit risk, the main risk for banks. Basel I is the round of consultations with central bankers around the world and, in 1988, the Basel Committee on Banking Supervision (BCBS) in Basel, Switzerland, issued a series of minimum capital requirements for banks.

It is also called the 1988 Basel Agreement and the 1992 Group of Ten (G10) Act. Subsequently, a new regulatory framework, called Basel II, was developed to take over the Basel I agreements. However, some have criticized the fact that they allow banks to take additional risks, which was considered to be part of the cause of the subprime financial crisis that began in 2008. Indeed, in the United States, the supervisory authorities of the banks have defended the position of requiring a bank to comply with the rules (Basel I or Basel II), which corresponds to the bank`s more conservative approach. For this reason, only the few largest U.S. banks were expected to operate under Basel II rules, with the rest regulated under Basel I. Basel III was developed in response to the financial crisis; it does not replace Basel I or II [necessary clarification], but focuses on several issues related primarily to the risk of a bank run. [Citation required] The document consists of two main sections: (a) the definition of capital and b) the structure of risk weights. Two shorter sections define the target reference ratio and the transition and implementation modalities. There are four technical annexes for capital definition, counterparty risk weights, credit conversion factors for off-balance sheet items and transitional arrangements.

Leverage ratio – total capital/total balance sheet In recent years, five amendments to the agreement have been agreed, four of which have been published in the language of the original agreement. The fifth amendment, which introduces parallel capital requirements for market risk, contains no language to amend the 1988 text. This amendment, adopted in January 1996, is published in the form of an „amendment to the capital agreement for the inclusion of market risks.“ In July 1988, the central bank governors of the Group of Ten Countries and Luxembourg approved a document entitled „International Convergence of Capital Measurement and Capital Standards“ which is the culmination of the Banking Regulations and Supervisory Practices Committee`s efforts in recent years to ensure the international convergence of prudential rules on the adequacy of international banks` capital adequacy. This agreement (hereafter the Basel Agreement of July 1988) is another step in the development of a framework for international cooperation in banking supervision.

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