19 October 2010

Basel Committee reports on the responses to the financial crises for the G20 in Seoul

In delivering the G20 mandate given at the Pittsburgh summit to develop a more resilient banking sector, the Basel committee has ushered in new global standards to address both firm-specific and broader, systemic risks have been referred to as "Basel III". Basel III is comprised of the following building blocks, which were agreed and issued by the Committee and its governing body between July 2009 and September 2010:

    •    higher quality of capital, with a focus on common equity, and higher levels of capital to ensure banks can better absorb the types of losses like those associated with this past crisis;
    •    better coverage of risk, especially for capital market activities;
    •    an internationally harmonised leverage ratio to constrain excessive risk taking and to serve as a backstop to the risk-based capital measure, with a view to migrating to a Pillar 1 treatment based on appropriate review and calibration;
    •    capital buffers, which should be built up in good times so that they can be drawn down in periods of stress;
    •    minimum global liquidity standards to improve banks' resilience to acute short term stress and to improve longer term funding; and
    •    stronger standards for supervision, public disclosures and risk management.

  The Basel Committee is also contributing to the Financial Stability Board initiative to address the risks of globally systemic banking institutions by developing approaches to identify them and ways to raise their loss-absorbing capacity, including work on capital surcharges, contingent capital, and bail-in-able debt.

© BIS - Bank for International Settlements