Global Bank Regulation: Principles and Policies

Chapter 8

The Rationale for Bank Capital Regulation

Regulation of bank capital forms the core of the international bank supervisory regime. For many years, the 1988 Basel Capital Accord (Basel I)¹ set the international standard for bank capital. While the original Basel Committee was composed of representatives from just the G-10 countries, Basel I was eventually adopted by over 120 countries. Simplicity was a strength of Basel I. Yet, as international financial markets grew and developed in the 1990s, and banking moved away from the traditional business of taking deposits and making loans, the 1988 framework became less and less relevant to the leading international banks. Increasingly, large banks were exposed to risks that Basel I had either ...