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What is the Basel III framework and where is it used?

Basel III is a set of international banking regulations that were developed by the Basel Committee on Banking Supervision (BCBS), a group of central banks from around the world. These regulations are designed to improve the stability and resilience of the global banking system by setting minimum standards for banks’ capital and liquidity levels.

Basel III consists of several different components, including:

  1. Minimum capital requirements: Banks are required to hold a certain amount of capital (such as common equity) as a buffer against potential losses. These requirements are meant to ensure that banks have enough financial cushion to absorb losses and continue operating even in times of economic stress.
  2. Leverage ratio: This is a measure of a bank’s debt relative to its equity. The Basel III framework sets a minimum leverage ratio to help ensure that banks have a sufficient amount of equity to cover their debts.
  3. Liquidity coverage ratio: This is a measure of a bank’s ability to meet its short-term financial obligations. The Basel III framework requires banks to hold a certain amount of highly liquid assets (such as cash and government bonds) to help ensure that they can meet their obligations even in times of financial stress.

Basel III is used globally and applies to all banks and financial institutions that are considered “systemically important,” meaning that their failure could have a significant impact on the financial system as a whole. The implementation of Basel III has been phased in over time, with the final phase of implementation set to be completed by the end of 2021.

This page was last updated on January 3, 2023.