Basel III

Basel III is an international regulatory framework on bank capital adequacy, stress testing, and liquidity risk. It was developed in response to the global financial crisis of 2007–08, and was adopted by the Basel Committee on Banking Supervision in December 2010.

The Basel III framework is designed to strengthen the resilience of the banking system by requiring banks to hold more capital and liquidity in reserve. It also includes new rules for stress testing banks to ensure that they can withstand financial shocks.

The Basel III framework is being implemented in phases over a period of several years. The first phase, which was implemented in 2013, included increases in the minimum capital requirements for banks. The second phase, which is being implemented in 2019, includes new rules for stress testing banks and for liquidity risk.

The Basel III framework has been controversial. Some banks have argued that the new capital requirements are too burdensome and will make it difficult for them to lend to businesses and consumers. Others have argued that the new rules are necessary to prevent another financial crisis.

The Basel III framework is a significant step forward in the regulation of the banking system. It is designed to make the banking system more resilient and to protect taxpayers from the cost of future financial crises. However, it remains to be seen whether the new rules will be effective in achieving these goals.

In addition to the capital and liquidity requirements, Basel III also includes new rules for bank governance and risk management. These rules are designed to improve the oversight of banks and to ensure that they have the appropriate risk management systems in place.

The Basel III framework is a complex and far-reaching set of regulations. It is still too early to say definitively whether the new rules will be effective in preventing another financial crisis. However, the Basel III framework is a step in the right direction, and it represents a significant improvement over the Basel II framework.