The Basel III norms are a comprehensive, internationally agreed-upon regulatory framework for banks, developed by the Basel Committee on Banking Supervision (BCBS). This framework is the third iteration of the Basel Accords, building upon Basel I (1988) and Basel II (2004). It originated in response to the deficiencies in financial regulation exposed by the 2007-2009 global financial crisis, aiming to strengthen bank regulation, supervision, and risk management. The BCBS published the requirements in 2010 to mitigate the risk of bank runs and failures.
The framework works by setting minimum standards for capital, liquidity, and leverage. Key provisions include raising the minimum Common Equity Tier 1 (CET1) capital requirement to 4.5% of a bank's risk-weighted assets, up from 2% in Basel II. An additional 2.5% capital conservation buffer brings the total minimum CET1 requirement to 7%. It introduced a non-risk-based Leverage Ratio, requiring banks to hold Tier 1 capital in excess of 3% of their total consolidated assets, to serve as a backstop to the risk-based capital requirements. Furthermore, it introduced two key liquidity standards: the Liquidity Coverage Ratio (LCR), published in January 2013, and the Net Stable Funding Ratio (NSFR), published in October 2014, to ensure banks can withstand short-term and long-term funding stress.
The BCBS, which is connected to the Group of Central Bank Governors and Heads of Supervision (GHOS), integrated the Basel III reforms into the consolidated Basel Framework. The framework has been recently amended and finalized with the Basel III: Finalising post-crisis reforms, also known as Basel 3.1 or the Basel III Endgame, which was introduced in 2017. This final package includes revisions to the minimum capital requirements for market risk and is being phased in by member countries between 2026 and 2028.