Basel III is the global framework of the Basel Committee on Banking Supervision, agreed from 2010 and finalised in 2017, that raised the quality and quantity of bank capital and introduced the leverage ratio, the LCR and the NSFR. The EU applies it through the CRR and the CRD.
CET1 (Common Equity Tier 1)Common Equity Tier 1 is the highest quality layer of a bank's own funds: ordinary shares, share premium, retained earnings and other reserves, minus regulatory deductions. The CET1 ratio divides it by risk-weighted assets and must be at least 4.5% under the CRR, before buffers and Pillar 2.
LCR (Liquidity Coverage Ratio)The Liquidity Coverage Ratio requires a bank to hold enough unencumbered high-quality liquid assets to cover its net cash outflows over a 30-day stress period. It must be at least 100% under the CRR and Commission Delegated Regulation (EU) 2015/61.
CRR (Capital Requirements Regulation)The Capital Requirements Regulation, Regulation (EU) No 575/2013, sets the directly applicable EU rules on own funds, capital requirements, liquidity, leverage, large exposures, reporting and disclosure for banks and investment firms. It applies the Basel standards across the single market.
CRR3CRR3 is Regulation (EU) 2024/1623, the amendment to the Capital Requirements Regulation that implements the final Basel III reforms in the EU. It revises the standardised approach for credit risk, limits internal models, introduces the output floor and replaces the operational risk approaches, mostly applying from 1 January 2025.
Output floorThe output floor limits how far internal models can lower capital requirements: total risk-weighted assets cannot fall below 72.5% of the amount calculated with standardised approaches. In the EU it is phased in under CRR3 from 50% in 2025 to 72.5% in 2030.
Leverage ratioThe leverage ratio is Tier 1 capital divided by total exposure, measured without risk weights and including off-balance-sheet items. The EU minimum is 3%, with an extra buffer for global systemically important banks. It is a backstop against risk weights that turn out too low.
LCR (Liquidity Coverage Ratio)The Liquidity Coverage Ratio requires a bank to hold enough unencumbered high-quality liquid assets to cover its net cash outflows over a 30-day stress period. It must be at least 100% under the CRR and Commission Delegated Regulation (EU) 2015/61.
NSFR (Net Stable Funding Ratio)The Net Stable Funding Ratio compares available stable funding (capital and longer or sticky liabilities) with required stable funding (set by the liquidity and maturity of assets) over a one-year horizon. The minimum is 100%. It applies in the EU since June 2021 under CRR2.
CRR (Capital Requirements Regulation)The Capital Requirements Regulation, Regulation (EU) No 575/2013, sets the directly applicable EU rules on own funds, capital requirements, liquidity, leverage, large exposures, reporting and disclosure for banks and investment firms. It applies the Basel standards across the single market.