Basel II and Basel III: A Brief Introduction

Basel II and Basel III are international banking standards developed to strengthen the stability and risk management of the global financial system.

Basel II focused mainly on improving how banks measure and manage credit, market, and operational risks, while Basel III was introduced after the 2008 financial crisis to further strengthen capital quality, liquidity buffers, and overall bank resilience.

Easy techniques to remember - Basel II vs Basel III in IBB or any competitive exam:

🔸 Basel II → “RISK”

R – Risk-based capital (8%)
I – Internal assessment (banks measure their own risk)
S – Supervision (regulator review)
K – Keep market discipline (disclosure)

👉 Focus: Measure Credit, Market, Operational risk
👉 Given by Basel Committee on Banking Supervision

🔸 Basel III → “SAFE BANK"

S – Strong capital (CET1)
A – Additional buffers (2.5% + countercyclical)
F – Funding stability (NSFR)
E – Emergency liquidity (LCR)
B – Borrowing limit (Leverage ratio)
A – Absorb shocks (crisis protection)
N – New risk coverage
K – Keep banks stable

👉 Introduced after 2008 Global Financial Crisis

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