International Regulatory Framework for Banks (Basel III)
“Basel III” is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector. These measures aim to:
- improve the banking sector’s ability to absorb shocks arising from financial and economic stress, whatever the source
- improve risk management and governance
- strengthen banks’ transparency and disclosures.
The reforms target:
- bank-level, or microprudential, regulation, which will help raise the resilience of individual banking institutions to periods of stress.
- macroprudential, system wide risks that can build up across the banking sector as well as the procyclical amplification of these risks over time.
These two approaches to supervision are complementary as greater resilience at the individual bank level reduces the risk of system wide shocks.
The Basel Committee’s oversight body – the Group of Central Bank Governors and Heads of Supervision (GHOS) – agreed on the broad framework of Basel III in September 2009 and the Committee set out concrete proposals in December 2009. These consultative documents formed the basis of the Committee’s response to the financial crisis and are part of the global initiatives to strengthen the financial regulatory system that have been endorsed by the G20 Leaders. The GHOS subsequently agreed on key design elements of the reform package at its July 2010 meeting and on the calibration and transition to implement the measures at its September 2010 meeting.
Basel III is part of the Committee’s continuous effort to enhance the banking regulatory framework. It builds on the International Convergence of Capital Measurement and Capital Standards document (Basel II).