Basel Iii Wikipedia

Basel III
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Basel III (or the Third Basel Accord) is a global regulatory standard on bank capital adequacy, stress testing and market liquidityrisk agreed upon by the members of the Basel Committee on Banking Supervision in 2010–11, and scheduled to be introduced from 2013 until 2018.[1][2] The third installment of the Basel Accords (see Basel I, Basel II) was developed in response to the deficiencies in financial regulation revealed by the late-2000s financial crisis. Basel III strengthens bank capital requirements and introduces newregulatory requirements on bank liquidity and bank leverage. The OECD estimates that the implementation of Basel III will decrease annual GDP growth by 0.05–0.15%.[3][4] Critics suggest that greater regulation is responsible for the slow recovery from the late-2000s financial crisis,[5][6] and that the Basel III requirements will increase the incentives of banks to game the regulatory framework,which could further negatively affect the stability of the financial system.[7]
Contents [hide]
1 Overview
2 Summary of proposed changes
2.1 US implementation
3 Macroeconomic Impact of Basel III
4 Key dates
4.1 Capital Requirements
4.2 Leverage Ratio
4.3 Liquidity Requirements
5 Studies on Basel III
6 See also
7 References
8 External links
[edit]Overview

Basel III will requirebanks to hold 4.5% of common equity (up from 2% in Basel II) and 6% of Tier I capital (up from 4% in Basel II) of risk-weighted assets (RWA). Basel III also introduces additional capital buffers, (i) a mandatory capital conservation buffer of 2.5% and (ii) a discretionary countercyclical buffer, which allows national regulators to require up to another 2.5% of capital during periods of high creditgrowth. In addition, Basel III introduces a minimum 3% leverage ratio and two required liquidity ratios. The Liquidity Coverage Ratio requires a bank to hold sufficient high-quality liquid assets to cover its total net cash outflows over 30 days; the Net Stable Funding Ratio requires the available amount of stable funding to exceed the required amount of stable funding over a one-year period ofextended stress.[8]
[edit]Summary of proposed changes

First, the quality, consistency, and transparency of the capital base will be raised.
Tier 1 capital: the predominant form of Tier 1 capital must be common shares and retained earnings
Tier 2 capital instruments will be harmonised
Tier 3 capital will be eliminated.[9]
Second, the risk coverage of the capital framework will bestrengthened.
Promote more integrated management of market and counterparty credit risk
Add the CVA (credit valuation adjustment)-risk due to deterioration in counterparty's credit rating
Strengthen the capital requirements for counterparty credit exposures arising from banks' derivatives, repo and securities financing transactions
Raise the capital buffers backing these exposures
Reduceprocyclicality and
Provide additional incentives to move OTC derivative contracts to central counterparties (probably clearing houses)
Provide incentives to strengthen the risk management of counterparty credit exposures
Raise counterparty credit risk management standards by including wrong-way risk
Third, the Committee will introduce a leverage ratio as a supplementary measure to the Basel II risk-basedframework.
The Committee therefore is introducing a leverage ratio requirement that is intended to achieve the following objectives:
Put a floor under the build-up of leverage in the banking sector
Introduce additional safeguards against model risk and measurement error by supplementing the risk based measure with a simpler measure that is based on gross exposures.
Fourth, the Committee is...