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Basel capital rules (Basel I, II, III)
1988; Basel III from 2010· Law or rule
Fact, law or dataA rule, statute, definition or measured number.
The Basel accords are international standards for how much equity capital banks must hold against their loans and investments.
See it on the Money & Finance map →How it works
Central bankers in the Basel Committee, hosted by the Bank for International Settlements in Switzerland, wrote Basel I in 1988: capital of at least 8% of risk-weighted assets. Safer assets count less: government bonds near 0%, home mortgages 50%, business loans 100%. Basel II (2004) let big banks use their own risk models. Basel III (2010), after the crisis, demanded more and better capital, a simple leverage cap and liquidity buffers. Each country writes them into its own rules.
Why it matters
Capital rules set how much banks can lend and what they prefer to hold; risk weights help explain why banks favor Treasuries and home mortgages over riskier loans.
Think of it like
Like a maximum loan-to-value applied to the bank itself: its equity must cover a set share of everything it owns.
Facts, rules and data
The Basel Committee publishes the accords; US regulators adopt them in federal capital rules; banks report their ratios quarterly in public call reports.
Debates and risks
The US 'Basel III endgame' rules, proposed in 2023 to raise big-bank capital, were pared back and delayed after industry pushback; the right level remains debated.
Connections (3)
▸Basel capital rules (Basel I, II, III) set capital minimums for Commercial banks: taking deposits, making loansFact, law or data
The connection
Capital is the owners' equity that absorbs losses before depositors are hurt. Basel rules, adopted by US regulators, require equity equal to a set share of risk-weighted assets: about 7% common equity plus extra for large banks. Riskier loans weigh more; many construction and development loans, classed as high-volatility CRE (HVCRE), carry 150%, so they need more capital.
When and why
Basel I in 1988, in force in the US by 1992; Basel III agreed in 2010 and phased in through 2019, all from the Basel Committee in Switzerland.
How we know
The published accords; US capital rules in the Code of Federal Regulations; banks' quarterly call reports show each bank's ratios.
Debates and risks
How much capital is enough is debated: economists Anat Admati and Martin Hellwig argue for far more equity; banks say more capital means less lending.
▸Basel capital rules (Basel I, II, III) limit Leverage: amplifying gains and losses with debtFact, law or data
The connection
Risk weights let banks hold little capital against assets labeled safe, like AAA mortgage bonds before 2008. Basel III added a blunt backstop: Tier 1 capital of at least 3% of total exposures whatever their risk, capping leverage at about 33 to 1. The largest US banks face a stricter 5% standard, which regulators moved to ease in 2025.
When and why
Agreed in 2010 and a binding international minimum from 2018; US banks have had a leverage ratio of their own since the 1980s.
How we know
The Basel III texts; Lehman's roughly 31-to-1 leverage in 2007 showed what risk-weighted rules alone missed.
Debates and risks
Banks argue the leverage ratio discourages low-risk Treasury market-making; whether easing it trades safety for smoother Treasury markets is debated.
▸Construction loans and mini-perms can carry a 150% risk weight under Basel capital rules (Basel I, II, III)Fact, law or data
The connection
Under the US version of Basel III, most acquisition, development and construction loans count as 'high-volatility CRE' with a 150% risk weight, so banks hold 50% more capital than for an ordinary CRE loan. A loan escapes if the borrower contributes at least 15% of completed value and stays within loan-to-value limits.
When and why
US bank capital rule adopted July 2013, effective January 2015; Congress narrowed the HVCRE definition in May 2018.
How we know
The federal capital rules (12 CFR Part 324 for the FDIC, Part 217 for the Fed) and Section 214 of the 2018 Economic Growth Act.
Debates and risks
Bankers say the charge pushed construction lending to debt funds; regulators say it reflects real losses. The 'Basel III endgame' revisions remain unsettled.