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Basel III

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Published: 12th August 2011 by William Webster

Basel III is about tightening up the capital and liquidity requirements for financial institutions.

Whilst regulators and politicians want to avoid further bails outs there is a danger that the new rules could add further disruption to the credit system. It therefore follows that the new legislation will take at least a decade to be applied and in the process it will be subject to alteration. To be clear bank regulation is very much in the "melting pot".

For many firms Basel III will increase the costs of doing business. Banks that find ways to change what they do or the way they do it will use their capital more effectively (aka leverage). This quick guide considers tiers 1, 2 and 3, the credit value adjustment, the liquidity coverage ratio, the net stable funding ratio and the possible effect on firms.

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