Solution

Basel III is a set of international banking regulations developed by the Bank for International Settlements, in order to promote stability in the international financial system. The purpose of Basel III is to reduce the ability of banks to damage the economy by taking on excess risk. The objectives include: ·         Improve the banking sector’s ability to absorb shocks arising from financial and economic stress. ·         Improve risk management and governance ·         Strengthen banks’ transparency and disclosures These objectives are achieved through its 3 pillars: ·         Pillar 1: Minimum Regulatory Capital Requirements based on Risk Weighted Assets (RWAs): Maintaining capital calculated through credit, market and operational risk areas. ·         Pillar 2: Supervisory Review Process: Regulating tools and frameworks for dealing with peripheral risks that banks face. ·         Pillar 3: Market Discipline: Increasing the disclosures that banks must provide to increase the transparency of banks.