Basel III's new rules for banks

Two years after Lehman collapsed, the Basel Committee has finally agreed a new set of rules to protect the international financial system from future crises. But will it work?

Two years after Lehman collapsed, the 27-strong Basel Committee of banking regulators has finally agreed new international rules to protect the international financial system from future crises. The key part of the package, known as Basel III, covers how much capital banks must hold in reserve to absorb losses.

The latest rules ask them to hold core tier-one capital (the highest-quality capital) worth 4.5% of risk-weighted assets. That's up from just 2% under the old rules, Basel II. There is an additional 2.5% buffer. Any bank falling within it will be forced to conserve capital by cutting back on dividends or bonuses. So the effective minimum capital ratio is 7%.

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