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CS Professional · Banking and Insurance - Laws and Practice · Risk Management in Banks and Basel Accords

Meridian Bank, a commercial bank, has set its minimum capital at 8% of risk-weighted assets, the level introduced by the first Basel Accord in 1988. Which risk did that original Accord primarily cover when setting this capital requirement?

Basel I, issued in 1988, primarily addressed credit risk. It required banks to hold capital of at least 8% of risk-weighted assets, using broad risk weights for asset classes. Operational risk capital arrived under Basel II and liquidity standards under Basel III.

  1. ACredit riskCorrect
  2. BOperational risk
  3. CLiquidity risk
  4. DInterest rate risk in the banking book

Explanation

Basel I (1988) focused on credit risk, assigning risk weights to asset categories and requiring capital of 8% of risk-weighted assets. Operational risk was introduced as an explicit capital charge only in Basel II. Liquidity standards came with Basel III.

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