Basel III: Basics

The financial crisis highlighted that the quantity and quality of bank capital was inadequate, despite the extensive changes introduced in Basel II. In addition, the crisis also underlined the need for regulators to address not simply capital adequacy but liquidity and leverage. This is what is being done through the development and implementation of Basel III. We describe how Basel III changes the nature of previous capital adequacy regimes. We also explain some of the reasons why major changes to the Basel II requirements were deemed to be necessary.