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Basel-I vs. Basel-II

The Basel Committee on Banking Supervision issued the first Basel accord in 1988. The committee consisted of regulatory authorities and central bank representatives that meet in Basel, Switzerland to discuss and present recommendations. The idea behind the Basel-I accord was to make sure that financial institutions had adequate capital to guard themselves against unforeseen financial losses. This requirement is known as capital adequacy. Bank failures of the past and their widespread economic impact instigated such a measure to be implemented. The regulations of the Basel-I accord required banks to maintain an 8 percent minimum capital. The capital amount to be maintained by a financial institution is risk weighted, which means that it is solely dependent upon the risk faced by…