Basel Accord III (2010) Liquidity requirement Systematic bank important capital Basel Accord III (2010) 1.Add content in Capital Requirement The additions in the first pillar are aimed at identifying potential risks to capital and requiring additional capital safeguards. Countercyclical capital buffer (CcyB) • Designed to counter procyclicality in the financial system. • Within a range of 0–2.5% comprising common equity will apply when credit growth is judged to result in a risk. Capital conservation buffer • intended to ensure that firms build up buffers of capital • Capital conservation buffer of CET1 capital equal to 2.5% of its total risk exposure amount. Containing leverage • An underlying cause of the Great Financial Crisis was the excessive build-up of leverage in the banking system. Basel Accord III (2010) 2. Liquidity requirement Basel III has requirements on the liquidity of bank assets, and there are two liquidity indicators • • The Liquidity Coverage Ratio (LCR) requires banks to have sufficient high-quality liquid assets to withstand a 30-day stressed funding scenario that is specified by supervisors. The longer-term, structural Net Stable Funding Ratio (NSFR) is designed to address liquidity mismatches. It covers the entire balance sheet and provides incentives for banks to use stable sources of funding. 3.SIBs The Committee identifies global systemically important banks (GSIBs) using a methodology that includes both quantitative indicators and qualitative elements. In addition to meeting the Basel III riskbased capital and leverage ratio requirements, G-SIBs must have higher loss absorbency capacity to reflect the greater risks that they pose to the financial system.
