Basel III — Key Concepts for FRR Candidates

1️⃣ Capital Requirements
Banks must maintain stronger capital buffers to absorb losses.
CET1 (Common Equity Tier 1)
Tier 1 Capital
Tier 2 Capital
Minimum CET1 requirement ≈ 4.5% of risk-weighted assets
2️⃣ Capital Buffers
Extra protection above minimum capital:
Capital Conservation Buffer
Countercyclical Buffer
Purpose → absorb losses during economic downturns.
3️⃣ Leverage Ratio
Limits excessive borrowing.
Formula:
Leverage Ratio = Tier 1 Capital / Total Exposure
Minimum requirement ≈ 3%
4️⃣ Liquidity Requirements
Two major liquidity rules:
LCR – Liquidity Coverage Ratio
Banks must hold enough liquid assets to survive 30 days of stress.
NSFR – Net Stable Funding Ratio
Ensures long-term stable funding.
RiskManagement BaselIII BankingRegulation FRR GARP


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