Basel III (or the Third Basel Accord or Basel Standards) is a global, voluntary regulatory framework on bank capital adequacy, stress testing, and market liquidity risk. This third installment of the Basel Accords (see Basel I, Basel II) was developed in response to the deficiencies in financial regulation revealed by the financial crisis of 2007–08. It is intended to strengthen bank capital requirements by increasing bank liquidity and decreasing bank leverage. Basel III was agreed upon by the members of the Basel Committee on Banking Supervision in November 2010, and was scheduled to be introduced from 2013 until 2015; however, implementation was extended repeatedly to 31 March 2019.
Recent Updates to Basel III
Basel III Recently Proposed Updates by the Federal Reserve
In October 2013, the Federal Reserve Board proposed rules to implement the Liquidity Coverage Ratio in the United States, which would strengthen the liquidity positions of large financial institutions. The proposal would create for the first time a standardized minimum liquidity requirements for large and internationally active banking organizations and systemically important, non-bank financial companies designed by the Financial Stability Oversight Council. These institutions would be required to hold minimum amounts of high-quality, liquid assets such as central bank reserves and government and corporate debt that can be converted quickly and easily into cash.
In July 2013, the Federal Reserve Board finalized a rule to implement Basel III capital rules in the United States, a package of regulatory reforms developed by the BCBS. The comprehensive reform package is designed to help ensure that banks maintain strong capital positions that will enable them to continue lending to creditworthy households and businesses even after unforeseen losses and during severe economic downturns. This final rule increases both the quantity and quality of capital held by U.S. banking organizations. The Board also published the Community Banking Organization Reference Guide, which is intended to help small, non-complex banking organizations navigate the final rule and identify the changes most relevant to them.