Capital Adequacy Requirements in Emerging Markets

In 1988, the Basel Committee on Banking Supervision introduced an international standard of banking regulation, founded on a single measure of regulatory capital provisions for credit risk and straightforward credit risk categories. Its main objectives were to encourage international banks to boost their capital positions and to reduce competitive inequalities. In the late 1990s, international regulators became increasingly concerned about the impacts Basel I would have on emerging markets. Up until then, the main focus of the Basel Committee was the banking system of its members, even though some of the risk categories of the Capital Accord concerned directly loans to non-OECD countries. Two events contributed to this change. First, the disproportionate amount of one-year and interbank loans that flowed to Asia in years preceding the 1997 Asian Crisis led the Committee to investigate whether its simple credit risk structure was to blame for the crisis. Second, since the mid-1900s, many developing countries have been adopting its regulatory framework. And after the Asian Crisis, this happened with the support of the Basel Committee.