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Home > Financial Reporting and Compliance > Business terms > Basel III
DEFINITION
Basel III is a set of standards and practices created to ensure that international banks
Basel III
maintain adequate capital to sustain themselves during periods of economic strain.
Posted by: Margaret Rouse WhatIs.com
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Basel III adds further controls to those required by Basel II, which in turn was a
refinement of Basel I.
The Basel II accord mandates that banks holding riskier assets have more capital on
hand than those maintaining safer portfolios. According to Basel II, companies must
publish both the details of risky investments and risk management practices. Basel III
establishes more stringent capital requirements, tripling the amount of capital banks
must keep on hand to absorb losses during financial crises. It also requires banks to
maintain higher common equity than before, including a capital conservation buffer of
2.5% of their assets.
The Basel accords are a series of recommendations on banking laws and regulations
issued by the Basel Committee on Banking Supervision (BSBS). The name for the
accords is derived from Basel, Switzerland, where the committee that maintains the
accords meets. The standards are not enforced by the Committee; however, countries
that adopt the standards are expected to create and enforce regulations created from
their specifications.
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FAQ: What is the Basel III accord and what does it require?
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