The New Basel Capitol Accord: Is 8% Adequate?

17 Pages Posted: 31 Dec 2003

See all articles by Benton E. Gup

Benton E. Gup

University of Alabama - Culverhouse College of Commerce & Business Administration

Abstract

The 1988 Basel Accord established 8% of risk weighted assets as the minimum equity capital standard that reflected bank risks at that time. The New Basel Capital Accord, to be implemented in 2006, maintains the 8% equity capital as the minimum standard, and it changes with the way the capital standard is computed in order to take certain risks into account. Nevertheless, this article argues that it does not reflect the higher degree of risks that banks face today. These risks include more off-balance sheet derivatives, real estate loans, subprime loans and over-exposure to equities. Because of the increased risks, a higher equity capital ratio is needed.

Keywords: Keywords, Banking, Capital, Regulation

JEL Classification: G21, G28

Suggested Citation

Gup, Benton E., The New Basel Capitol Accord: Is 8% Adequate?. Available at SSRN: https://ssrn.com/abstract=440881 or http://dx.doi.org/10.2139/ssrn.440881

Benton E. Gup (Contact Author)

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
Tuscaloosa, AL 35487-0223
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
637
Abstract Views
4,597
rank
58,501
PlumX Metrics