The international financial crisis has exposed the weaknesses of the regulatory system of financial markets and demonstrated inefficiencies in risk management procedures in the financial sector. In this context, the Basel Committee on Banking Supervision (BCBS) has defined the new rules, known as Basel III, in order to improve the ‘rules of definition of global capital and liquidity to increase the stability of the sector’.
Basel III is based on three pillars defined in the Basle II agreement and adjusts the agreement to the current challenging reality of the financial markets, namely:
- A more rigorous definition of capital in order to ensure a greater quantity, quality, transparency and coherence of the capital base;
- The introduction of new capital buffers (Capital Conservation Buffer and Countercyclical Capital Buffer);
- The strengthening of risk coverage, including counterparty credit risk (CCR Counterparty Credit Risk);
- Leverage ratio implementation, in order to complement the Basel II framework, based on risk;
- The implementation of new short- and long-term liquidity ratios (LCR Liquidity Coverage Ratio and NSFR Net Stable Funding Ratio);
- The introduction of the concept of systemically important institutions (Systemically Important Financial Institution).