Short Notes for DAIBB-Management of Financial Institution: Difference between Basel-II and Basel-III


Difference between Basel-II and Basel-III

BCBS is a committee of banking supervisory authorities that were established by the central bank governors of the G-10 countries in 1974 with a proposal of working towards building new international financial structures with the goal of minimizing credit risk in financial sector. Basel accord is the guidelines on regulatory standards formulated by the Basel Committee on banking supervision (BCBS). The  BCBS has so far introduced a capital measurement system commonly referred to as Basel I, Basel II and Basel III, which seeks to improve the banking sector’s ability to deal with financial stress, improve risk management and strengthen the banks’ transparency.  

The important Key elements of BASEL III and the difference from BASEL II can be understood as follows:

Requirements
BASEL II
BASEL III
Capital conservation buffers to RWAs
None
2.5%
Minimum ratio of total capital to RWAs
8%
10.50%
Minimum ratio of common equity RWAs
2%
4.5%
Tier I capital to RWAs
4%
6%
Leverage Ratio
None
3%
Counter Cyclical buffer
None
0% to 2.50%
Minimum liquidity coverage ratio
None
TBD
Net stable funding ration
None
TBD

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