The Basel III Capital Framework: a decisive breakthrough

Speech by Mr Hervé Hannoun, Deputy General Manager of the BIS, at the BoJ-BIS high Level Seminar on "Financial Regulatory Reform: Implications for Asia and the Pacific", Hong Kong SAR, 22 November 2010.

Introduction

Ten days ago, the Basel III framework was endorsed by the G20 leaders in South Korea. Basel III is the centrepiece of the financial reform programme coordinated by the Financial Stability Board. This endorsement represents a critical step in the process to strengthen the capital rules by which banks are required to operate. When the international rule-making process is completed and Basel III has been implemented domestically, we will have considerably reduced the probability and severity of a crisis in the banking sector, and by extension enhanced global financial stability.

The title of my intervention, "The Basel III Capital Framework: a decisive breakthrough", sounds like a military metaphor, which may be surprising in the context of a speech on banking regulation. But indeed, the supervisory community had to fight a fierce battle to require more capital and less leverage in the financial system in the face of significant resistance from some quarters of the banking industry.

I will highlight nine key breakthroughs in Basel III, from a focus on tangible equity capital to a reduced reliance on banks' internal models and a greater focus on stress testing, that will increase the safety and soundness of banks individually and the banking system more broadly.

Full speech , including tables and graphs (16 pages, 368 kb)