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Basle Capital Convergence Agreement Of July 1988 Signatories

Posted on 08 Apr 2021 by Kay

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. In recent years, five amendments to the agreement have been adopted, 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.” 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. 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.

Important steps in the process included the Basel Agreements of 1975 and 1983, which defined the principles governing the distribution of supervisory tasks between the parent and host authorities through branches, subsidiaries and joint ventures in the international banking sector, and the exchange of information between these authorities. The Tier 1 Capital Ratio – Tier Capital 1 / All RWA Starting in 1988, this framework was gradually introduced in the G-10 member countries, which include 13 countries from 2013[update]: Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain, Sweden, Switzerland, the United Kingdom and the United States of America. The leverage-to-total/average total ratio of the Basel I balance sheet, i.e. the 1988 Basel Agreement, focuses primarily on credit risk and the appropriate weighting of asset risks. 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. 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.

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