What is Basel III?

Basel is standard guideline which each country applied in order to regulate and control financial risk for financial institution. At the beginning, they set up a committee called Basel Committee on Banking Supervision (BCBS) which its office is The Bank for International Settlements (BIS) situated in Basel city, Switzerland for the purpose of stipulate international financial standard for stability, security and equality among general international financial institutions around the world. One of the main principles is a standard of management for international fund called Basel Capital Accord or Basel by guarantee that financial institutions have to have sufficient fund to support risks and damages that may be occur. Subsequently, they developed the Basel II, not only specify particularly an amount of fund for grant credit but also give precedence to risk management of financial institutions means that financial institutions have to evaluate of their risk and ensure that there will be enough fund to handle those risk.

After financial crisis in 2007 had consequence impact on economic recession around the world including EU, therefore commercial banks strict to such as granting credit in domestic including business, household and event their disbelieve in those commercial banks.

In this regard, 27 members decided to improve Basel III which raise quality sum of capital and buffer capital. Under the Basel III many of commercial banks increase the capital stock more than one hundred billion in ten years. As a result of this, it can be said that dividends for an investor may decrease.

Nevertheless, new regulations under Basel III somehow strengthen a sustainable system of banking and ability to encounter unexpected crisis without rely on only in government budget which eventually is tax from the people.