Basel III
Bank capital, leverage, and liquidity standards from the Basel Committee on Banking Supervision, post-2008.
Basel III is the third major iteration of the Basel Accords on bank capital and liquidity standards, developed by the Basel Committee on Banking Supervision in response to weaknesses revealed in the 2008 financial crisis. The framework substantially raises minimum capital requirements, introduces a leverage ratio backstop independent of risk weights, and introduces explicit liquidity standards (the Liquidity Coverage Ratio for short-term and the Net Stable Funding Ratio for structural). National regulators implement Basel III with local variations — the US implementation through the Federal Reserve, OCC, and FDIC has substantially different details than the EU's CRR/CRD implementation. Final post-2008 reforms, sometimes called Basel IV, are still phasing in across jurisdictions.
Core components
- Common Equity Tier 1 minimum (4.5%) plus capital conservation buffer (2.5%)
- Total Tier 1 minimum (6%)
- Total capital minimum (8%)
- Leverage ratio (3% minimum)
- Liquidity Coverage Ratio (LCR)
- Net Stable Funding Ratio (NSFR)
- Countercyclical buffer
- G-SIB surcharges
Primary use case
Prudential regulation of banks worldwide; capital and liquidity adequacy assessment; basis for stress testing regimes like CCAR.
Common criticisms
- Risk-weight calibration remains contested and model-dependent
- complexity creates compliance burden disproportionately affecting smaller banks
- cyclicality concerns about capital requirements amplifying downturns
- arbitrage opportunities between banking and shadow banking sectors.
Lineage
- Siblings
- CCAR, DFAST, CECL, CAMELS Rating