Basel III

Background

Basel III is an international banking regulatory framework that sets minimum standards for bank capital, stress testing, liquidity, and leverage. It applies to banks and other regulated credit institutions, with the aim of making them more resilient in periods of financial stress. In practice, its rules affect how much capital banks must hold, how they fund their activities, and how they manage short-term liquidity and balance-sheet risk. Because these requirements shape lending capacity and funding costs, Basel III has had broad significance for banking supervision and financial stability policy.

The Basel Committee on Banking Supervision published the Basel III requirements in 2010, and implementation in major countries began in 2012. It was developed after the 2008 financial crisis exposed weaknesses in the existing regulatory framework and the inadequacy of earlier standards. Basel III followed Basel I, introduced in 1988, and Basel II, introduced in 2004, as the third of the Basel Accords. Its design reflected the policy goal of reducing the risk of bank runs and bank failures by strengthening the buffers and safeguards expected of banks.

In practical terms, Basel III raised expectations for the quantity and quality of bank capital and added more detailed liquidity and leverage constraints than earlier frameworks. It also introduced and later expanded stress-testing and other supervisory tools intended to improve banks’ ability to withstand shocks. The regime has been implemented unevenly across jurisdictions, and some elements, including the Fundamental Review of the Trading Book and the later Basel III final reforms, have been phased in over extended timelines. In Russia, recent official remarks have noted that the central bank’s short-term liquidity ratio is softer than the Basel standard because it is calibrated to domestic conditions.