What is Basel III?
Basel III is an international agreement on bank regulation that takes its name from the Swiss home town of the Bank for International Settlements (BIS), the organisation that has been described as the central bank for central banks. It sought to toughen regulatory requirements in the wake of the 2008 financial crisis.
Where have you heard about Basel III?
Financial media and economics commentators will make reference to Basel III, as will textbooks about banking and finance. As an investor, you may hear of Basel III from your financial adviser.
What you need to know about Basel III.
First promulgated in 2009, Basel III is focused on two areas. One is to raise the capital requirements imposed on banks in order to make them more resistant to external shocks. The second is to strengthen the so-called leverage ratio, ensuring that banks strike a proper balance between relying on debt on one hand and equity on the other. As the name suggests, Basel III built on two previous Basel agreements that had sought to lay down minimum standards for banks that operated internationally. The best-known of these criteria is that banks be obliged to keep minimum capital equivalent to eight per cent of their loan book.