The Basel Committee, or BCBS, was formed back in 1974 by the central-bank Governors of the G-10 (Group of Ten) countries to introduce regulatory standards for banks throughout the world.
Although the Committee has no international legal authority, such is its power and influence that individual regulatory authorities are expected to incorporate their recommendations and guidelines into their own national systems.
The committee members are drawn from a wide range of countries including the US , Russia , India and China
Basel III is a regulatory framework designed to ensure that banks have sufficient liquidity and capital adequacy in the wake of the worldwide financial crisis that started in 2007. Its main aims are to:
- Improve the banking sector's ability to absorb shocks arising from financial and economic stress
- Improve risk management and governance
- Strengthen banks' transparency and disclosures
Basel III also redefines what is known as “Tier 1” capital, the measure of the liquid assets of a bank. The Basel III Global Regulatory Framework document goes into a great deal of detail regarding what can and cannot be counted as Tier 1 Capital, and you will need to read this for the full picture. To put it in a nutshell, however, banks will be forced to hold much more liquid capital than before, and Tier 1 will in future have to consist mainly of retained earnings and common shares.
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