Basel I
When Basel I (also: Basel Accord ), the provisions of the will Basle Committee referred to the first Basel Capital Accord 1988 Accord.
Motifs
The reason was the concern of the governors of the G10 countries that the equity capital of the world's most important banks had fallen to dangerous levels. The concern was triggered by the collapse of the Herstatt Bank . Equity is required to cushion losses and ensure solvency. However, due to the ongoing displacement battle, the banks expanded their businesses without adequate capital adequacy. As borrowers became increasingly insolvent , banks' equity fell. In order to reduce the bankruptcy risk of the banks and possible costs for the depositors in the event of bankruptcy, the agreements were aimed at securing an adequate capital base and creating uniform international competitive conditions. These agreements became the international standard in the 1990s and are now recognized in over 100 countries. They are monitored by the respective banking supervisory authority .
The banks' lending practice is limited by the capital requirement . The maximum loan volume is linked to the available equity.
content
Basel I comprises three parts:
- Definition of the components of equity
- Risk weighting
- Target standard of the equity ratio
Definition of the components of equity
The committee divides equity into the following two parts, whereby at least 50 percent of a bank's equity base must consist of so-called core capital:
- Core capital (also called "actual equity" or "class 1", English called "tier 1"), which consists of the share capital and openly disclosed reserves (for example retained earnings ). Goodwill should not be taken into account or deducted.
- Supplementary capital (also called “tier 2”), which is made up of hidden reserves, revaluation reserves, general value adjustments, hybrid financing instruments and subordinated liabilities with a fixed term.
Holdings in subsidiaries that conduct banking and financial business are to be deducted from both capital classes.
Risk weighting
The essential element of Basel I is that the balance sheet assets (or receivables ) should receive one of four risk weights, depending on the counterparty. This assigns the credit risk or the probability of default by the counterparty. In the case of a loan to a central bank, for example, it is assumed that there will never be a default, which is why 0 percent is applied here.
| Debtor category | Risk weight |
|---|---|
| OECD countries, cash | 0% |
| OECD banks, public institutions | 20% |
| mortgage-backed securities | 50% |
| all other claims on companies and private customers | 100% |
The resulting risk-weighted investments are called risk-weighted assets (RWA for short).
In a further step, the committee extends this logic to off-balance sheet items by assigning credit conversion factors to these. This means that these positions are viewed from the perspective of credit exposures and taken into account in terms of the relative degree of their credit risk with 0 to 100 percent. Details are given in Appendix 3.
Target standard of the equity ratio
Now the equity and the risk weighting can be related to each other. The regulations stipulate that banks must hold at least 8 percent equity in relation to their risk-weighted assets .
The required capital backing is calculated as follows:
- Required equity backing = amount receivable × risk weight × 8%
An important change took place in 1996 when the equity accord was added to market risk . Interest rate risk and share price risk in the trading book are taken into account; Foreign currency and commodity risk throughout the institute. Two methods for measuring market risk were defined, a standard method and an approach based on internal, stochastic models.
criticism
Basel I criticized the fact that methods for reducing the risk were not taken into account and that the differentiation of the credit risk was insufficient. This criticism led to the resumption of negotiations in 1999 and the new Basel Capital Accord, Basel II .
See also
Web links
- Basel I original text (PDF)
- Agreement on Basel I as original text (PDF; 2.3 MB)
