What are Basel Norms? Indian Economy UPSC notes

Basel Norms with Examples What are Basel Norms? Imagine a bank as a big money box where people deposit their money. The bank then lends this money to different people and businesses. However, some borrowers may not return the money, which creates a risk for the bank. If too many loans are not repaid, the bank may collapse, and depositors could lose their money. To prevent such failures and ensure financial stability, a group of global banking regulators created Basel Norms —a set of rules that banks must follow to manage risks properly. Why are they called Basel Norms? These norms are named after Basel, a city in Switzerland , where the Bank for International Settlements (BIS) is located. BIS helps central banks from different countries to work together and maintain global financial stability. Basel I (1988) – Focus on Credit Risk 💡 Think of it like this: Suppose you lend money to two friends—one has a stable job, and the other is unemployed. Who is more likely to repay you? The one with a s…