Basel III

Definition

Basel III in plain English

After the 2008 financial crisis, banks around the world nearly collapsed because they had lent out too much money while keeping too little of their own cash on hand as a cushion. Basel III is the global rulebook — named after the Swiss city where regulators met — that forces banks to hold more of that safety cushion (called capital) and to keep enough easy-to-sell assets so they can survive a sudden rush of customers pulling out money. Think of it like a rule that says a lemonade stand must keep a jar of its own savings before it's allowed to run on borrowed cash, so one bad day doesn't wipe it out. The whole point is to make the banking system harder to break.

Practice Basel III

What is its Tier 1 Capital Ratio, and is it above the Basel III minimum of 6.0%?

Related Principles of Finance terms

• Altman Z-score
• Asset turnover
• Cash conversion cycle
• Cash flow from operations (CFO)
• Cash ratio
• Current ratio
• Days inventory outstanding (DIO)
• Days payable outstanding (DPO)
• Days sales outstanding (DSO)
• DuPont decomposition