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Basle Capital Convergence Agreement Of July 1988 Signatories Uk

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. 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. Basel I, the 1988 Basel Agreement, focuses mainly on credit risk and appropriate asset 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. 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] 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.