Basel III : The Three Pillars, Capital Adequacy, Liquidity and Leverage Ratios Explained

The purpose of this book is to provide an overview of Basel requirements in a readily understandable and logical format. In doing so coverage not only provides a description of the key elements of Basel requirements but an explanation of how they have evolved, and why, and the challenges that bank management have faced in implementing them. It also sets out the issues and challenges that management, from board level down, face on an ongoing basis as they seek to run a profitable banking operation whilst endeavouring to meet regulatory and other stakeholders’ expectations.

A further issue that is explored is whether Basel requirements have helped to level the playing field given this was one of the aims of the Basel Committee on Banking Standards (BCBS) when they published the very first Basel requirements, Basel I, as long ago as 1988. The answer to this is a qualified yes but the fact that many so-called shadow banking entities are able to offer bank-like products without the need to comply with Basel requirements leaves banks with an ongoing competitive disadvantage.

In order to deliver the above the book is broken down into four Parts as follows:

Part One - An Overview : this section provides an overview of Basel requirements and how they have evolved to become a comprehensive and complex set of rules, principles and guidance that has significantly changed the nature of the banking industry.

Part Two -the Basel Framework : this is the core of the book. Over a total of 17 chapters it provides a detailed explanation of what the Basel requirements are for each of the three pillars, Pillar 1 - capital adequacy, Pillar 2 - supervisory review and Pillar 3 - market discipline.

Part Three - Implementation : whilst Part Two sets out the details of the Basel Framework the actual requirements that banks must comply with are those issued by the relevant regulators at national level. This section explains the process whereby the requirements issued by the BCBS are translated into national level regulations, how they have been implemented by banks and the issues and challenges banks continue to face on an ongoing basis with respect to topics such as models and model risk, data and data quality, risk reporting and stress testing.

Part Four - Basel Requirements and the Banking Industry : Part Three explains how Basel requirements are being implemented at national and bank levels. This section looks at the progress being made on implementing them across all jurisdictions, what issues this creates and whether banks are now facing a level playing field.

What readers will get from this book is:

  ·     a comprehensive, but non-technical, overview of Basel requirements;

·    an explanation of how, and why, current requirements have evolved;

 ·     a detailed understanding of the process required to take proposals from concept stage through to final approval;

 ·     an appreciation of the complexity, and cost, of implementation at both national and bank levels;

  ·     an explanation of why Basel requirements are not being implemented in all jurisdictions;

 ·     how implementation has impacted bank business strategies, risk management practices and governance;

  ·     an insight into supervisory expectations on implementing Basel requirements and how they go about assessing this;

·     the challenge facing banks, and supervisors, from non-bank entities that are not subject to Basel requirements.

Finally, it will be clear that, despite implementation of the Basel requirements continuing to be a work in progress, the changes already embedded by banks has made them much more resilient as evidenced by their ability to absorb the impacts of Covid-19 without raising concerns over their ongoing viability.

For more information on the content of the book see the following:

  • For a more detailed summary of the contents for each chapter click here.

  • For details of chapter headings, a list of tables and a list of figures - click here.

  • The book contains a number of acronyms - click here for a full list together with brief explanations of their meanings.

  • Details of references can be found here.