Basel Framework
CategoryFinancial Market Regulation
Basel III is the outcome of the Basel Committee on Banking Supervision (BCBS) to secure international convergence of supervisory regulations governing the capital adequacy of internationally active banks. It allows the banking system to support the economy through its entire cycle.
Banking System Stability
Capital Adequacy Measurement and Discipline
Basel III was developed by the BCBS committee of the Bank for International Settlements (BIS) as a foundation for a resilient banking system that will address the shortcomings of pre-crisis regulations and help avoid the build-up of systemic vulnerabilities.
The third installment of the Basel Accords finalized in 2017 strengthens the requirements on bank's minimum capital ratios, and introduces new requirements on liquid asset holdings and funding stability, thereby mitigating the risk of a run on the bank.
The framework is focused on improving the quality of bank regulatory capital, ensuring resiliency to withstand losses in times of stress;, enhancing risk capture, introducing capital buffers, constraining excess leverage and increasing bank liquidity.
Basel III reforms seek to restore credibility in the calculation of Risk-weighted Assets (RWA) and improve the comparability of banks' capital ratios by enhancing the robustness of the standardized approaches for Credit, Credit Valuation Adjustment (CVA) and Operational risks, and constraining the use of internal model approaches.
