Basel Framework
Corporate Credit Analysis glossary · Corporate Credit Analysis
Definition
International regulatory framework for bank capital requirements developed by the Basel Committee on Banking Supervision, including credit risk capital (standardised and internal-ratings-based approaches), market risk, and operational risk.
Basel Framework in plain English
Banks make money by lending, but if a bank lends recklessly and its loans go bad, it can collapse and take people's savings and the wider economy down with it. The Basel Framework is a set of international rules, agreed on by regulators from many countries, that forces banks to hold a safety cushion of their own money ('capital') sized to how risky their activities are. It covers the risk that borrowers won't repay (credit risk), that markets will swing against the bank (market risk), and that things like fraud or system failures go wrong (operational risk). Think of it as a shared rulebook requiring every bank to keep an emergency fund proportional to the danger it's taking on, so one bank's bad bets don't sink everyone.
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