THE CONSEQUENCES OF THE CAPITAL REGULATION IN CREDIT INSTITUTIONS ACCORDING TO THE BASEL I AGREEMENTS

Capital is one of the key factors to be considered when the safety and soundness activity of bank is evaluation.An adequate capital based serves as a safety network for a variety of ricks to which a bank is expose d in the course ofits business. He absorbs the possible losses and provided a basis for maintaining depositor confidence in bank. Also,the capital is the ultimate determinant of a bank’s lending capacity. A bank’s balance sheet cannot be expanded beyondthe level determined by its capital adequacy ratio. Therefore, the availability of capital consequently determines themaximum level of assets.