Basel III requirements:

 Basel III requirements:

 1. Capital Requirements

Basel III increases the minimum capital requirements to ensure banks hold higher-quality risk-weighted capital. The requirements are as follows:

 Common Equity Tier 1 (CET1): Banks must hold at least 4.5% of their risk weighted assets (RWA) in CET1 capital.

 Tier 1 Capital: Includes CET1 and additional Tier 1 capital, with banks required to hold at least 6% of their RWA in Tier 1 capital.

 Total Capital: Banks must hold at least 8% of their RWA in total capital, which includes Tier 1 and Tier 2 capital.

 2. Capital Conservation Buffer (CCB)

Banks are required to hold an additional Capital Conservation Buffer of 2.5% of RWA, composed of CET1 capital. This buffer is intended to absorb losses during periods of financial stress, and if a bank falls below this buffer, restrictions are placed on earnings distributions like dividends and bonuses.

 3. Countercyclical Capital Buffer

The Countercyclical Capital Buffer is set by national regulators during periods of excessive credit growth and ranges from 0% to 2.5% of RWA. This buffer ensures that banks accumulate additional capital during boom periods, which can be drawn down in times of stress.

 4. Leverage Ratio

Basel III introduces a minimum leverage ratio of 3%, calculated as Tier 1 capital divided by the bank's average total consolidated assets (including off-balance sheet exposures). This measure ensures that banks do not become excessively leveraged.

 5. Liquidity Standards

 Liquidity Coverage Ratio (LCR): Banks are required to hold sufficient high-quality liquid assets (HQLA) to cover their total net cash outflows over a 30day stress period. The minimum LCR requirement is 100%, meaning banks must hold liquid assets equal to or greater than their expected net cash outflows.

 Net Stable Funding Ratio (NSFR): The NSFR requires banks to maintain available stable funding (ASF) to cover at least 100% of their required stable funding (RSF) over a one-year period, ensuring resilience over long term horizons.

 6. Additional Loss Absorbency for Systemically Important Banks (SIBs)

Global Systemically Important Banks (GSIBs) are required to hold additional CET1 capital buffers, ranging from 1% to 3.5%, depending on their systemic importance. This is on top of the regular Basel III capital requirements.