Bank Capital and Regulatory Framework

In the modern banking regulations, the minimum capital requirements play a very
important role. The banking industry worldwide has witnessed implementation of the
so-called Basle Accord that sets minimum capital standards for internationally active
banks. During the 1970’s and 1980’s there existed several challenges posed by
momentous declines in the banks’ capital ratios resulted into bank insolvencies and
ultimately failures. Following this, bank regulators have put their attention on the
minimum bank capital requirements in order to boost the financial system stability. A
crucial step in that direction was the 1988 Basel Capital Accord which was the
agreement for banks among G-10 countries on minimum risk-based capital
requirements of 8% to total assets, BIS (2004).