Learning Objectives:

  • Understand the evolution of the Basel framework.

  • Apply Basel capital requirements to bank risk management.

  • Identify emerging risks in banking.

8.1 The Evolution of Basel

The Basel Accords have evolved over time:

  • Basel I (1988): Focused on credit risk with a simple risk-weighting system.

  • Basel II (2004): Introduced a three-pillar framework (Minimum Capital, Supervisory Review, Market Discipline).

  • Basel III (2010–2017): Strengthened capital and liquidity requirements in response to the GFC.

  • Basel IV (2017 Reform): Introduced revised standardized approaches and constraints on internal models .

The Ankara Medipol University course provides a comprehensive overview of this evolution .

8.2 Basel Capital Requirements

Key requirements under Basel III/IV include:

  • CET1 Ratio: Minimum 4.5% of RWA.

  • Tier 1 Ratio: Minimum 6% of RWA.

  • Total Capital Ratio: Minimum 8% of RWA.

  • Capital Conservation Buffer: An additional 2.5% of CET1.

  • Liquidity Coverage Ratio (LCR): Minimum 100%.

  • Net Stable Funding Ratio (NSFR): Minimum 100%.

8.3 Emerging Risks

Contemporary banking faces new and emerging risks. The Bocconi University course covers “emerging risks, including environmental and climate-related risks” . Key emerging risks include:

  • Climate Risk: Physical and transition risks from climate change.

  • Cybersecurity Risk: Threats from cyberattacks and data breaches.

  • FinTech and Digital Risks: Risks from new technologies and business models.

  • Regulatory Risks: Changes in the regulatory environment.

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