Definition

Basel III

Basel III is a set of standards and practices created to ensure that international banks maintain adequate capital to sustain themselves during periods of economic strain.

Basel III adds further controls to those required by Basel II, which in turn was a refinement of Basel I. 

The Basel II accord mandates that banks holding riskier assets have more capital on hand than those maintaining safer portfolios. According to Basel II, companies must publish both the details of risky investments and risk management practices. Basel III establishes more stringent capital requirements, tripling the amount of capital banks must keep on hand to absorb losses during financial crises. It also requires banks to maintain higher common equity than before, including a capital conservation buffer of 2.5% of their assets.

The Basel accords are a series of recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision (BSBS). The name for the accords is derived from Basel, Switzerland, where the committee that maintains the accords meets. The standards are not enforced by the Committee; however, countries that adopt the standards are expected to create and enforce regulations created from their specifications. 

This was last updated in March 2012
Posted by: Margaret Rouse

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