Basel I was an international accord to set minimum levels of
capital for banks. It was designed to ensure that lenders were
sufficiently well capitalized to protect depositors and the
financial system.
The first Basel Accord however was replaced by a new accord,
Basel II. The new accord was introduced to keep pace with the
increased sophistication of lenders' operations and risk management
and overcome some of the distortions caused by the lack of risk
assessment divisions in Basel I.
Basel I required lenders to calculate a minimum level of capital
based on a single risk weight for each of a limited number of asset
classes, e.g., mortgages, consumer lending, corporate loans,
exposures to sovereigns. Basel II goes well beyond this, allowing
some lenders to use their own risk measurement models to calculate
required regulatory capital whilst seeking to ensure that lenders
establish a culture with risk management at the heart of the
organization up to the highest managerial level.