to strengthen the stability of the global banking system as well as harmonize international regulations. The 1988 Basel accord was a sig- nificant advancement in banking regulation, setting a formal standard for capitalization worldwide. It was subsequently adopted by the national regulators in over 100 countries. The Basel rules have no regulatory force as such; rather, individual country regulatory regimes adopt them as a minimum required standard. This means that there are slight variations on the basic Basel requirements around the world, of which the European Unions Capital Adequacy Directives are the best example.     3Also known as the "Cooke ratio" after the Chairman of the Basel Committee at the time, Peter Cooke.     The Basel I Rules The BIS rules set a minimum ratio of capital to assets of 8% of the value of the assets. Assets are defined in terms of their risk, and it is the weighted risk assets that are multiplied by the 8% figure. Each asset is assigned a risk weighting, which is 0% for risk-free assets such as certain country government bonds, up to 100% for the highest-risk assets such as certain corporate loans. So while a loan in the interbank market would be assigned a 20% weighting, a loan of exactly the same size to a corpora- tion would receive the highest weighting of 100%. Formally, the BIS requirements are set in terms of the type of capital that is being set aside against assets. International regulation defines the following types of capital for a bank:   ■ Tier 1: perpetual capital, capable of absorbing loss through the non- payment of a dividend. This is shareholders equity and also non- cumulative preference shares; ■ Upper Tier 2: this is also perpetual capital, subordinated in repayment to other creditors; this may include for example irredeemable subordi- nated debt; ■ Lower Tier 2: this is capital that is subordinated in repayment to other creditors, such as long-dated subordinated bonds.   Thelevel of capital requirement is as follows:   Tier1capital ------------------------------------------------------------ >4% Risk-adjustedexposure Tier1+ Tier 2 capital