Bank for International Settlements in Basel ©Frank Rumpenhorst

Basel framework

The Basel framework encompasses all applicable standards issued by the Basel Committee on Banking Supervision. The Bundesbank played a substantial part in formulating all of these standards.

The foundations of the framework were laid by the Basel Committee in 1988 with the first standard, the Basel Accord. This established the first global minimum capital requirements for international banks, in order to improve the stability of the financial sec-tor and maintain confidence in bank solvency. Banks were required at the time to maintain a minimum of 8% of regulatory capital, measured in terms of credit risk-weighted assets. The accord was amended in 1996 to incorporate market risk regulation. This meant that a bank's 8% minimum level for regulatory capital was measured as a percentage of its total risk-weighted assets, which consisted of credit risk and market risk positions.

In 2004, the revised Basel framework "International Convergence of Capital Measurement and Capital Standards" (Basel II) was published. The fundamental goal of the Ba-sel Committee was to further strengthen the soundness and stability of the international banking system. Basel II comprised three pillars. Pillar 1 encompassed the calculation of capital requirements on the basis of bank risks (credit, market and operational risk). Further focal points were the specification of basic principles for qualitative banking supervision and risk management in banks (pillar 2), and the introduction of supervisory disclosure requirements in order to strengthen market discipline (pillar 3).

In response to the financial market crisis, the Basel Committee issued a short-term package of measures in 2009, which was updated in 2010 and 2011 and included stricter rules – notably higher capital requirements for securitisations and market risk. Stricter risk management and disclosure requirements for banks were also introduced. These changes to Basel II are informally referred to as "Basel 2.5".

In 2010, the Basel Committee on Banking Supervision published "Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems", and augmented and revised this in the following years. These reforms aimed to increase the resilience of the banking sector in times of economic stress through stricter capital and liquidity rules, thereby reducing the risk of financial sector problems affecting the real economy. In addition, they were designed to improve banks' risk management and governance and increase transparency in the banking sector.

The new standards targeted both the micro prudential and macro prudential levels through multiple individual measures. Increased quality, quantity and transparency of regulatory capital and the introduction of capital buffers were agreed upon in particular. Even higher capital requirements were introduced for particularly risky products. To prevent excessive bank leverage, the implementation of a leverage ratio was proposed. Moreover, the first ever global minimum liquidity requirements were introduced to limit liquidity risk.

At the G20 Leaders' Summit in Seoul in 2010, all heads of state or of government endorsed the Basel III framework and pledged to implement it in a consistent manner.

Since then, more details have been specified on the supervisory treatment of systemically important banks under Basel III, including through the introduction of additional capital buffers and capital requirements for the resolution of distressed banks.

Since 2011, the Basel Committee has been dealing with the question of the right balance be-tween risk sensitivity, simplicity and comparability of the approaches for calculating banking risks and the corresponding capital requirements. These methods were revised as part of the Basel III finalization. The market risk requirements were also revised ("Fundamental Review of the Trading Book/FRTB”) and published in January 2019.The other revised approaches for calculating banking risks, including a change to the capital floor ("Basel I floor" or "output floor") and the leverage ratio, were published in Decem-ber 2017. The measures of the Basel III reforms have been applicable since January 2023 in accordance with the Basel Committee's requirements. However, there are delays in imple-mentation in some jurisdictions. This includes the EU, where the measures should be applied as of January 2025.