The Committee was formed in response to the messy liquidation of a Cologne-based bank in 1974. On 26 June 1974, a number of banks had released Deutschmark to the Bank Herstatt in exchange for dollar payments deliverable in New York. On account of differences in the time zones, there was a lag in the dollar payment to the counter-party banks, and during this gap, and before the dollar payments could be effected in New York, the Bank Herstatt was liquidated by German regulators.
This incident prompted the G-10 nations to form towards the end of 1974, the Basel Committee on Banking Supervision, under the auspices of the Bank of International Settlements (BIS) located in Basel, Switzerland.
Basel I, that is, the 1988 Basel Accord, primarily focused on credit risk. Assets of banks were classified and grouped in five categories according to credit risk, carrying risk weights of zero (for example home country sovereign debt), ten, twenty, fifty, and up to one hundred percent (this category has, as an example, most corporate debt). Banks with international presence are required to hold capital equal to 8 % of the risk-weighted assets.
Since 1988, this framework has been progressively introduced in member countries of G-10, currently comprising 13 countries, namely, Belgium, Canada, France, Germany, Italy, Japan, Luxemburg, Netherlands, Spain, Sweden, Switzerland, United Kingdom and the United States of America.
Most other countries, currently numbering over 100, have also adopted, at least in name, the principles prescribed under Basel I. The efficiency with which they are enforced varies, even within nations of the Group of Ten.
IN BRIEF: ABA Wants a Quicker Update to Basel I.(federal regulators asked to speed up changes to Basel I)(Brief Article)
Jun 01, 2005; The American Bankers Association has asked federal banking regulators to speed up planned changes to the Basel I capital rules....
Somebody Must Stop the Runaway Basel II Train: Reform of Basel I Should Be Given Higher Priority Than Adopting These Risky and Inequitable Rules. If Not, Congress Should Intervene before Irrevocable Damage Is Done to the World's Best Banking System
Mar 01, 2005; A recent article in American Banker told of two former Federal Reserve employees and their study of the competitive effects of...