BASEL III

• In December 2010, the Basel Committee

on Banking Supervision (“Basel
Committee”) finalised a package of
measures to strengthen global capital
and liquidity rules with the goal of
strengthening the resilience of the global
banking system.

• The rules are detailed out in the

documents Basel III: A global regulatory
framework for more resilient banks and
banking systems and Basel III:
International framework for liquidity risk
measurement, standards and monitoring
(collectively referred to as Basel III).
• The Basel Committee on Banking
Supervision (BCBS) is the primary
global standard setter for the
prudential regulation of banks and
provides a forum for regular
cooperation on banking supervisory
matters.
• Its 45 members comprise central
banks and bank supervisors from 28
jurisdictions.
What is BASEL III?
• Basel III is an internationally agreed set of
measures developed by the Basel Committee
on Banking Supervision in response to the
financial crisis of 2007-09.

• The measures aim to strengthen the regulation,

supervision and risk management of banks.

• Like all Basel Committee standards, Basel III

standards are minimum requirements which
apply to internationally active banks.

• Members are committed to implementing and

applying standards in their jurisdictions within
the time frame established by the Committee.
 Objectives of BASEL III
• To make banking more
resilient by strengthening
capital and liquidity
regulations among the
players in global banking

• To minimize systemic
revolving risk to improve
banks’ ability to withstand
any financial turmoil.
Why BASEL III?
• To address the crisis that
befell financial institutions
in the 2007 global crisis as a
result inadequate
regulatory provisions to fix
fundamental banking risks
that banks face.
 How BASEL III is able to provide prudent risk
management for banking industry?
• The new global standards to address both firm specific and general systemic risks
referred to as Basel III aimed at raising the quality of capital to position banks to
better absorb losses on going concern basis.

• Basel III aimed at increasing the risk coverage of the capital framework
particularly for trading books, securitizations, off-balance sheet exposures and
vehicles and counter-party credit exposures stemming from derivatives.

• The crisis revealed that some banks held greater amount of complex illiquid
credit products without the corresponding capital to support those risks.

• The failure to also recognise major on and off balance sheet as well as derivatives
related exposures also worsened the crisis.
 How BASEL III is able to provide prudent risk
management for banking industry?
• Another distinguishing feature of Basel III is the introduction of leverage ratio which would serve
as a “backstop” to the risk based capital requirement.

• The crisis revealed that many banks were highly leveraged though they reported strong Tier I
capital ratios.

• The leverage ratio will help to contain the development of high leverage in the banking system
and provide additional support for the risk based requirements.

• The crisis also highlighted the importance of liquility in the stability of banks.

• Funding suddenly dried up and limited in supply during the crisis period for a long time.

• Basel III in response introduced global minimum liquidity standards to ensure the resilience of
banks to short term disruptions in access to funding and to solve longer term liquidity
mismatches.