Comparison of Basel I, Basel II, and Basel III
Aspect Basel I Basel II Basel III
Introduction 1988 2004 2010 (in response to the 2008 financial cris
Objective Ensure capital adequacy in banks. Improve risk management and refine capital Strengthen bank resilience and address sy
Focus Area Credit risk. adequacy.
Credit, market, and operational risks. risks.
Liquidity risk, leverage, and capital quality.
Risk Weighting Simplistic, based on broad categories (e.g., More nuanced with internal ratings-based (IRB) Incorporates stricter risk-weighting and rev
Minimum Capital Ratio corporate
8% of risk-weighted
loans 100%).
assets (RWA). approaches.
Same (8%), but risk-weighting is more refined. [Link]: Common Equity Tier 1 (C
Raised
Leverage Ratio Not addressed. Not addressed. to 4.5%, Total
Introduced minimum
Capitalleverage
to 10.5%ratio
(including
of 3%.
Liquidity Coverage Not addressed. Not addressed. buffers). Liquidity Coverage Ratio (LCR)
Introduced
Capital Quality Basic definitions of capital adequacy. Tiered structure with greater emphasis on quality. Stricter
Net Stable
definitions;
Fundingfocus
Ratioon
(NSFR).
Common Equi
Stress Testing Not included. Introduced but not mandatory globally. 1 (CET1).
Strengthened, with mandatory stress tests
Countercyclical Buffer Not addressed. Not addressed. buffers.
Introduced to protect against economic cyc
Systemic Risk Limited scope. Moderate, with no explicit systemic focus. (0-2.5%).
Explicit measures to address risks posed b
globally significant banks.
