Regulatory Capital Requirement in Basel III

Abstract

Capital adequacy requirement plays a central role in modern regulatory frameworks for commercial banking worldwide. One of the key lessons from the financial crisis of 2007–2008 is the lack of high quality and quantity of capital base during the stressed time period. I explain the regulatory capital requirement on commercial banks that aims to ensure resilient banks and banking systems since 2008. It starts with the concept of capital and then examines the role of the capital for banks to withstand negative business situations. Major insights underpinned in Basel III regarding the capital requirement are highlighted. The chapter itself can be viewed as an introduction on regulatory capital frameworks. These relevenat risk management topics are given extensively in subsequent chapters of this book. .