What is the Difference Between Basel 1 2 and 3?

The Basel Accords are a set of international banking regulations established by the Basel Committee on Banking Supervision. There are three versions of these accords: Basel I, Basel II, and Basel III. Each version has specific objectives and requirements for managing banking risks:

1. Basel I: This is the first accord and focuses on the capital adequacy of financial institutions. It introduced guidelines for how much capital banks must keep in reserve based on the risk level of their assets.
2. Basel II: This updating of the original accord has three main objectives:

• Minimum capital requirements
• Supervisory review of an institution's capital adequacy and internal assessment process
• The effective use of disclosure as a lever to strengthen market discipline and encourage sound risk management

1. Basel III: This accord further refined the rules based on the lessons learned from the worldwide financial crisis of 2007 to 2009. It has three main components:

• Focus on capital adequacy, including tier 1 and tier 2 capital
• Introducing additional buffers of equity to be maintained by banks
• Moving from a backward-looking approach to a forward-looking approach by considering macroeconomic and environmental factors

In summary, Basel I introduced minimum capital requirements for banks, while Basel II added supervisory responsibilities and increased the focus on risk management. Basel III further improved the rules by considering macroeconomic factors and adding additional buffers of equity for banks to maintain during difficult economic times.

Comparative Table: Basel 1 2 vs 3

The Basel Accords (Basel I, Basel II, and Basel III) are a set of international banking regulations developed by the Basel Committee on Banking Supervision, with the aim of managing banking risks in light of the rapidly changing global financial environment. The main differences between these accords are primarily due to the differences in their risk management standards and requirements:

Basel I was the earliest of the three accords and introduced capital reserve requirements for banks, while Basel II and Basel III have been developed to enhance the safety and stability of the banking system worldwide by refining the rules and addressing additional risks.