Basel I (1988) focused on credit risk, Basel II (2004) included operational and market risks, and Basel III (post-2008 crisis) aimed to strengthen bank capital requirements and improve risk management.1)
Basel I (1988) focused on credit risk, Basel II (2004) included operational and market risks, and Basel III (post-2008 crisis) aimed to strengthen bank capital requirements and improve risk management.2)
Basel I (1988) focused on credit risk, Basel II (2004) included operational and market risks, and Basel III (post-2008 crisis) aimed to strengthen bank capital requirements and improve risk management.3)
The Basel III proposals signify a global regulatory shift for banks, focusing on increased capital requirements and refined risk weight calculations.4)
In the US, this implementation is called the ‘Basel endgame,’ while the UK refers to it as Basel 3.1 and the EU calls it Finalised Basel III.5)
The Basel Committee on Banking Supervision established Basel regulations in response to financial turmoil in the late 1970s.6)
The 2008 financial crisis revealed significant shortcomings in Basel II, leading to Basel III, which introduced more stringent capital requirements, new risk weight calculations, and a revised leverage ratio framework.7)
Implementation has been pushed back to 1 January 2025 for the EU, and 1 July 2025 for the UK and US. Canada and Australia have already adopted Basel III.8)
The Basel endgame focuses on increasing capital against credit, market, and operational risks, significantly impacting lending costs and availability.9)
While the Standardised approach does not allow modelling, Advanced Internal Ratings-Based (A-IRB) banks previously modelled probabilities and loss given defaults (LGDs).10)
Basel III removes this flexibility by setting input floors (LGDs at 40% for corporates and 45% for financial institutions) and an output floor (capital requirements cannot be less than 72.5% of the Standardised equivalent).11)
As the year draws to a close, many bankers are preparing – in some cases anxiously – for the start date of Basel 4 in the EU on January 1, 2025 (known as Basel 3.1 in the UK).12)