Quiz 2 — Basel I, II & III

1) The Basel Committee develops international banking standards, but U.S. regulators must implement applicable requirements through U.S. rules.

2) Basel I, introduced in 1988, used an 8% minimum total capital ratio relative to risk-weighted assets for internationally active banks.

3) Under Basel I, an 8% capital ratio meant a bank had to keep 8% of all its assets in cash.

4) Basel II was created after the 2007–2009 financial crisis as the main response to that crisis.

5) Basel II has three pillars: minimum capital requirements, supervisory review, and market discipline.

6) Basel III strengthened the quality of bank capital and added an international framework for liquidity and stable funding.

7) Common Equity Tier 1 (CET1) mainly consists of customer deposits and short-term borrowing.

8) The Liquidity Coverage Ratio (LCR) focuses on high-quality liquid assets available for a 30-day stress period.

9) The Net Stable Funding Ratio (NSFR) measures the same 30-day liquidity window as the LCR.

10) Every U.S. bank is subject to exactly the same Basel III capital and liquidity requirements, regardless of its size or risk profile.