Basle Convergence Accord

Quick Reference

An agreement reached in 1988 by the Group of Ten (G10), and enacted through the Bank for International Settlements, concerning capital adequacy regulations for banking in G10 countries. It suggested that banks should have specific liabilities to cover a minimum of 8% of their capital at risk. Capital at risk was defined in terms of a set of multipliers to be attached to a number of different asset classes and multiplied by their balance-sheet worth. For example, lending commitments to public sector counterparties had a multiplier of zero, OECD banks and municipalities 20%, and other private sector institutions 100%. The 8% of the total value of their capital at risk has to be covered by shareholder funds, which are defined as Tier 1 capital, and the rest covered by Tier 2 capital, in the form of specifically designated funding instruments. See also Basle Two.

Subjects: Economics.

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