Banking Regulation and Basel
How international banking rules are made, why they failed to prevent the 2008 crisis, and the ongoing struggle to regulate global finance.
The Basel Framework
The Basel Committee on Banking Supervision, housed at the Bank for International Settlements in Switzerland, sets the global standards for bank regulation. The Basel Accords -- Basel I (1988), Basel II (2004), and Basel III (2010-2023) -- establish minimum capital requirements, risk management standards, and disclosure rules that banks worldwide must follow. The fundamental idea is simple: banks must hold enough capital to absorb losses without collapsing and requiring taxpayer bailouts.
Basel III, developed in response to the 2008 crisis, significantly strengthened requirements. Banks must hold more capital, maintain liquidity buffers, and limit leverage. 'Systemically important' banks face even stricter requirements because their failure would threaten the entire financial system. The rules are not legally binding but are adopted into national law by member countries -- a process that creates inconsistencies as countries implement them at different speeds and with different interpretations.
