The BIS capital adequacy “rules”: a critique


  • M.J.B. HALL



Basle Supervisors’ Committee, capital adequacy, risk-asset ratio, risk weights


The Basle Supervisors' Committee (BIS) capital adequacy proposals of July 1988 called on the G10 supervisory authorities to ensure that all internationally active banks falling under their jurisdiction observe a minimum 8 per cent risk-asset ratio by the end of 1992. This article presents a critique, not of the general principles of Basle, but of the details that are seen to weaken the value of the agreement. The risk-asset ratio and the derivation of risk weights are considered.


JEL: G21, G32, G28


BIS, Proposals for the lnternational Convergence of Capital Measurement and

Capital Standards, a consultative paper issued by the Committee on Banking

Regulations and Supervisory Practices, BasIe, December 1987.

GARDENER, E.P.N., "CapitaI Adequacy and Banking Supervision: Towards a

Practical System", Journal oJ Bank Research, Summer 1982.

GROUP OF THIRTY, How Bankers see the World Financial Market, New York, 1982.

HALL, M.J.B., "Banking Supervision in Hong Kong: The Case for Reform", Hong

Kong Economie Papers Oournai of the Hong Kong Economics Association),

August 1986.

HALL, M.I.B., Financial Deregulation: A Comparative Study of Australia and the

United Kingdom, Macmillan, London 1987(a).

HALL, M.I.B., "Deregulation of Building Societies: The Prudentiai Issues", Royal

Bank o[ Scotland Review, December 1987(b).

LLEWELLYN, D.T.L., "The poIicy framework: cap'itai adequacy", Chapter 2 in

Managing Bank Assets and Liabilities, ed. J.S.G. Wilson, Euromoney Publications,

London, 1988.

LOMAX, D., "Risk Asset Ratios: A New Departure in Supervisory Policy", National

Westminster Bank Quarterly Review, August 1987.

TOBIN, J., "The theory of portfolio selection", Chapter 1 in The Theory o[ Interest

Rates, eds. F. Hahn and F. BrechIing, Macmillan, London, 1965.

VOTJA, G., "A Dynamic View of CapitaI Adequacy",]ournal oJ Commercial Bank

Lending, December 1974




How to Cite

HALL, M. (2013). The BIS capital adequacy “rules”: a critique. PSL Quarterly Review, 42(169).