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FRM Part II · FRM Exam Part II · Capital Regulation Before the Global Financial Crisis

A bank in 1990s practice applies the original 1988 Basel Accord. Which minimum ratio of total capital (Tier 1 plus Tier 2) to risk-weighted assets did the Accord require of internationally active banks?

The 1988 Basel Accord required internationally active banks to hold total capital of at least 8% of risk-weighted assets. Tier 1 capital had to be at least 4% of risk-weighted assets, so 4% is only the Tier 1 floor.

  1. A4%
  2. B8%Correct
  3. C10%
  4. D12%

Explanation

The 1988 Basel Accord set a minimum total capital ratio of 8% of risk-weighted assets, with Tier 1 at least 4%. The 4% figure is only the Tier 1 minimum. The 10% and 12% figures are not Basel I minimums.

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