Highlight important points of all three Basel Accords (Basel I, Basel-II and Basel III).

Business & Finance Homework Help| Business & Finance homework help

Basel I
• Established minimum capital requirements for banks and other financial institutions, with the aim of reducing their risk exposure.
• Required that a certain portion of assets held by banks should be in the form of tier one capital (equity) to maintain a sound financial position in case of any losses.
• Set 8% as the minimum amount that had to be held in equity and encourage diversification of investments.

Basel II
• Strengthened the criteria for determining capital requirements set out in Basel 1.
• Aimed at improving risk management practices and measuring credit risks more accurately, such as an increased focus on operational risk management or stress testing scenarios for potential losses associated with different types of lending activities.
• Incorporated market risk into the formula for calculating required capital ratios, taking into account volatility from derivatives trading and other investments.

Basel III
• Focused on introducing enhanced liquidity rules to ensure that banks have sufficient liquid assets available during times of distress situations and increasing transparency through more stringent disclosure requirements.
• Introduced new leverage ratio standards which limit how much borrowing/lending can occur relative to total assets held by financial institutions; this is intended to reduce systemic risks across entire markets if any single institution becomes too heavily leveraged on its own balance sheet.
• Increased required levels of equity needed from 4% (according to Basel I) up to 6%, plus additional buffers applied depending on size/type/business model of banking organizations.