Under the Basel I Accord, which was introduced by the Basel Committee on Bank Supervision in 1988, banks are required to maintain a certain level of capital adequacy. Specifically, the Accord stipulates that banks must hold capital equal to at least 8% of their risk-weighted assets. This means that for every $100 of risk-weighted assets, a bank must hold at least $8 of capital. This requirement is designed to ensure that banks have sufficient capital to absorb losses and meet their obligations, thereby promoting the stability and integrity of the international banking system.

Choice B is incorrect. Basel I does not set a maximum limit on the capital that banks must hold in relation to their risk-weighted assets. Instead, it sets a minimum requirement to ensure that banks have enough capital to absorb unexpected losses.

Choice C is incorrect. While Basel I does require banks to hold a certain amount of capital in relation to their risk-weighted assets, the specific standard set by Basel I is not $10 for every $100 of risk-weighted assets but rather $8 for every $100.

Choice D is incorrect. Similar to choice B, this option incorrectly suggests that Basel I sets a maximum limit on the capital that banks must hold in relation to their risk-weighted assets. Furthermore, it inaccurately states this supposed maximum as being lower than the actual minimum requirement set by Basel I.

Things to Remember

• Basel I, introduced in 1988, was the first of the Basel Accords aimed at ensuring financial stability by setting minimum capital requirements for banks.
• The 8% minimum capital requirement under Basel I is calculated as a percentage of a bank's risk-weighted assets, emphasizing the need for sufficient capital against potential losses.