Basel III/IV Framework
Capital requirements, liquidity ratios, and risk-weighted assets under the Basel regulatory framework
Basel III/IV Framework
Introduction
The Basel framework stands as the most influential international standard in banking regulation, establishing minimum capital requirements, liquidity standards, and risk management principles that national regulators worldwide have adopted and implemented. Named after Basel, Switzerland—home of the Bank for International Settlements where the framework was developed—these standards have fundamentally shaped how banks measure and manage risk, allocate capital, and structure their businesses.
The framework's evolution reflects lessons learned from financial crises. Basel I emerged from the Latin American debt crisis of the 1980s, establishing the original 8% capital requirement. Basel II responded to growing sophistication in risk measurement, introducing internal model approaches and the three-pillar structure. Basel III arose from the 2008 global financial crisis, substantially strengthening capital requirements and introducing liquidity standards. The ongoing Basel IV reforms further tighten standards, particularly constraining internal model usage.