Basel III principles in banking aim to strengthen bank resilience through which changes?

Basel III principles in banking aim to strengthen bank resilience through which changes?

• A. Lower capital requirements
• B. Higher capital requirements, liquidity standards, and risk management improvements to strengthen bank resilience
• C. Eliminate all risk
• D. Relaxed supervision and oversight

Answer: (B)

Basel III strengthens bank resilience by increasing the capital banks must hold, raising liquidity standards, and tightening risk-management practices. Higher capital requirements give banks a larger loss-absorbing cushion, reducing the risk of insolvency when losses occur. Liquidity standards, such as the liquidity coverage ratio, ensure banks have enough high-quality liquid assets to survive short-term funding stresses, while longer-term funding stability is supported by the net stable funding ratio. Improvements in risk management cover better governance, more robust risk measurement, enhanced stress testing, and tighter controls on leverage and funding. Together, these changes make banks better prepared to weather financial stress and continue operating. The other options would weaken resilience, ignore the reality that some risk is inherent, or imply looser supervision, which Basel III does not advocate.

Basel III strengthens bank resilience by increasing the capital banks must hold, raising liquidity standards, and tightening risk-management practices. Higher capital requirements give banks a larger loss-absorbing cushion, reducing the risk of insolvency when losses occur. Liquidity standards, such as the liquidity coverage ratio, ensure banks have enough high-quality liquid assets to survive short-term funding stresses, while longer-term funding stability is supported by the net stable funding ratio. Improvements in risk management cover better governance, more robust risk measurement, enhanced stress testing, and tighter controls on leverage and funding. Together, these changes make banks better prepared to weather financial stress and continue operating. The other options would weaken resilience, ignore the reality that some risk is inherent, or imply looser supervision, which Basel III does not advocate.