It was found that an 8% capital ratio, which it required, was generally insufficient to protect banks from insolvency. A modeling approach reflecting actual assessment of variable default risk and the changing risk profile of individual credits seemed more appropriate. In the Caribbean, regulators had been for some time been increasing that ratio.
There was no recognition of term structure of credit risks in Basel I. Capital charges were set at the same levels regardless of the maturity of the credit exposure. However, we know that default risk is greater the longer the exposure. There was not enough differentiation of the level of risk in different currencies or national markets or different types of commodities.