📌 What is Basel III?
A global rulebook for banks, created after the 2008 crisis to prevent collapses.
Goal: Make banks safer, stronger, and less risky.
Why?
💥 2008 Crisis = Banks took HUGE risks, ran out of cash.
🔧 Basel III = “Financial seatbelt” for banks.
🔑 Key Pillars of Basel III
| Pillar | What It Does | Key Term to Remember |
|---|---|---|
| 1. Capital Buffers | Banks must save more money (capital) to absorb losses. | 10.5% Minimum Capital Ratio |
| 2. Liquidity Rules | Hold enough cash/easy-to-sell assets for 30-day crises. | LCR (Liquidity Coverage Ratio) |
| 3. Leverage Ratio | Limit borrowing (debt) vs. savings. | 3% Leverage Ratio |
📊 Simple Examples
1. Capital Buffer:
- Bank lends ₹100 → Must keep ₹10.5 saved (10.5% of loans).
2. Leverage Ratio:
- Bank has ₹100 savings → Can’t borrow more than ₹33.
🎯 Why Basel III Matters
- Your Money is Safer: Banks can’t gamble with deposits.
- Fewer Recessions: Stable banks = stable economy.
- Global Rules: All big banks follow the same playbook.
⚠️ Challenges & Criticisms
- Banks Hate It: More savings = Lower profits.
- Costly Compliance: Smaller banks struggle.
- Complexity: Rules are hard to implement.
🚨 Exam/Interview Must-Knows!
- 3 Pillars: Capital, Liquidity, Leverage.
- Key Ratios:
- CET1 (Common Equity Tier 1): 4.5% minimum.
- LCR: 100% (enough cash for 30 days).
- Leverage Ratio: 3%.
- Stress Tests: Banks must survive “worst-case scenarios” (e.g., pandemics, market crashes).
📝 FAQ for Interviews
Q: How is Basel III different from Basel I/II?
A: Basel III focuses on quality of capital, liquidity, and leverage (not just quantity).
Q: Does Basel III affect loans?
A: Yes! Safer banks = stricter lending → Fewer risky loans.
Q: Who enforces Basel III?
A: Central banks (e.g., RBI in India, Fed in the USA).
📈 Visual Summary
Basel III = Banking Safety Kit
1. Capital Buffer (10.5%) → 🛡️
2. Liquidity (30-Day Cash) → 💧
3. Leverage (3% Limit) → ⚖️ 💡 Pro Tip: Memorize the 3 pillars and key ratios—they’re asked in 90% of exams/interviews!
✨ Final Takeaway: Basel III ensures banks are prepared for storms, so your money stays safe and the economy stays stable!
(Need a cheat sheet? Copy-paste this!) 🚀