Insight
Title:
Basel III
Description:
Basel III (or the Third Basel Accord) is a global, voluntary regulatory framework on bank capital adequacy, stress testing, and market liquidity risk. It was implemented in the European Union as part of the legislative package comprising Directive 2013/36/EU (CRD IV) and Regulation (EU) No. 575/2013 on prudential requirements for credit institutions and investment firms (CRR). (Note, therefore, the potential impact of Brexit.)
The Basel III proposals sought to strengthen the regulatory regime applying to credit institutions in the following areas.
- Enhancing the quality and quantity of capital.
- Strengthening capital requirements for counterparty credit risk (and in CRD III for market risk) resulting in higher Pillar I requirements for both.
- Introducing a leverage ratio as a backstop to risk-based capital.
- Introducing two new capital buffers: one on capital conservation and one as a countercyclical capital buffer.
- Implementing an enhanced liquidity regime through the Net Stable Funding Ratio and Liquidity Coverage Ratio.
Based on the European Commission’s timetable, the implementation transition period is expected to run until 2021.
PESTEL:
Political
Five Forces:
Rivalry