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Basel III

International Regulatory Framework for Banks

Basel III, the third of the Basel Accords, was first published in 2009 by the Basel Committee on Banking Supervision to strengthen the regulation, supervision, and risk management of the banking sector. Basel III attempts to:

  1. improve the banking sector's ability to absorb shocks arising from financial and economic stress
  2. improve risk management and governance
  3. strengthen banks' transparency and disclosures.

Basel III proposes many new capital, leverage, and liquidity standards. These standards are to be phased in over years to ensure that these changes are not detrimental to the banking industry or the economies in which these rules will be implemented.

Capital

Basel III will require banks to hold Tier 1 common equity equal to 4.5% (up from 2% in Basel II) of its risk weighted assets. Minimum Tier 1 capital, which will include common equity Tier 1 and additional Tier 1 capital, will be a minimum of 6% (up from 4% in Basel II) of its risk weighted assets as of January 1, 2015.

Leverage Ratio

Basel III requires banks to maintain a minimum leverage ratio in excess of 3%, calculated as the quotient of Tier 1 capital and the bank's non-risk weighted average total consolidated assets. Systemically important banks are required to hold a greater amount of Tier 1 capital to maintain a minimum ratio in excess of 6%.

Liquidity

The Liquidity Coverage Ratio requires a bank to hold sufficient high-quality liquid assets to cover its total net cash outflows over 30 days; the Net Stable Funding Ratio requires the available amount of stable funding to exceed the required amount of stable funding over a one-year period of extended stress.

References:

We hope that this information will assist you, but it should not be used or relied upon as a substitute for your own independent research. For a more comprehensive view of the standards/requirements, please visit the respective issuer's website.

OIS Curve Discounting

Webinar

OIS Curve Discounting

Watch the on-demand webinar to learn more about advanced OIS Curve Building.