Module XI·Article III·~2 min read
Basel Standards: Basel III and Basel IV
Banking
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Basel Accords are international banking regulation standards developed by the Basel Committee on Banking Supervision (BCBS). The objective: to ensure the financial stability of banks and prevent systemic crises. Basel I (1988) — first capital requirements; Basel II (2004) — introduction of internal ratings and three “pillars”; Basel III (2010–2019) — response to the 2008 crisis; Basel IV or Basel III Finalization (2017–2028) — further tightening.
Basel III: key changes. Quality of capital: emphasis on CET1 (Common Equity Tier 1 — shareholders’ equity and retained earnings). Minimum requirements: CET1 at least 4.5%, Tier 1 at least 6%, Total Capital at least 8%. Conservation Buffer: additional CET1 buffer of 2.5% (total: CET1 minimum 7%). In case of buffer breach — restrictions on dividends and bonuses. Countercyclical Buffer: 0–2.5%, set by national regulators during periods of credit boom. G-SIB Buffer: 1–3.5% for globally systemically important banks.
Liquidity requirements. LCR (Liquidity Coverage Ratio): stock of high-quality liquid assets must cover net cash outflows over 30 days of a stress scenario, LCR at least 100%. Level 1 high-quality liquid assets: cash, central bank reserves, high-quality government bonds. NSFR (Net Stable Funding Ratio): the ratio of Available Stable Funding to Required Stable Funding at least 100%. Reduces the risk of maturity mismatch.
Leverage Ratio — leverage restriction: Tier 1 Capital / Total Exposure at least 3%. Total Exposure includes on-balance sheet assets and off-balance sheet items. This is a backstop against manipulations with risk-weighted assets. G-SIBs bear an additional leverage ratio buffer.
Basel IV (full implementation by January 2028). Key changes: the standardized approach to credit risk became more detailed; Output Floor — limitation on the use of internal models (not less than 72.5% of the standardized approach); Fundamental Review of the Trading Book (FRTB) — revision of market risk requirements for trading books; revision of approaches to operational risk. An increase in capital requirements for large banks by 15–20% is expected.
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