Understanding the Basel Framework
What Every Banker Should Know?
If you're looking to deepen your understanding of these standards and how they shape the banking landscape, iLearn by LSF Global offers a wide range of insightful and practical resources to help you stay ahead.
In this blog, we’ll explore what the Basel Framework is, its evolution through Basel I, II, III (and IV), and why understanding it is non-negotiable for today’s banking professionals.
What Is the Basel Framework?
The core objectives of the Basel Framework are:
- Ensuring banks hold enough capital to cover risks
- Encouraging sound risk management
- Creating consistency in banking regulation across borders

Asset Allocation
Basel I: The Foundation (1988)
Launched in 1988, Basel I was the first major international accord on capital adequacy. Its primary goal was to ensure banks had a minimum level of capital relative to their risk-weighted assets (RWAs).
Key features:
- Minimum Capital Requirement: 8% of RWAs
- Categorization of assets into risk buckets (0%, 20%, 50%, 100%)
- Focused mainly on credit risk
While Basel I was a significant milestone, it was soon seen as too simplistic, failing to account for more complex banking activities.
Basel II: The Three Pillar Approach
Basel II, introduced in the early 2000s, expanded the scope of regulation and addressed the gaps in Basel I by introducing a more nuanced, risk-sensitive approach.
The Three Pillars of Basel II:
- Minimum Capital Requirements – Refined calculation of credit, market, and operational risk.
- Supervisory Review Process – Banks must evaluate internal risk and capital adequacy strategies.
- Market Discipline – Increased disclosure to promote transparency and accountability.
Basel II brought in models to calculate risks more precisely but was criticized for its reliance on internal bank models, which lacked sufficient oversight.
Featured Learning Modules to Deepen Your Basel Knowledge
- Bank Capital Requirements
- Basel I
- Basel II and Basel 2.5 Basics
- Basel II and Basel 2.5 Pillar 1 (Minimum Capital Requirements)
- Basel II and Basel 2.5 Pillar 2 (Supervisory Review)
- Basel II and Basel 2.5 Pillar 3 (Market Discipline)
- Basel III Basics
- Basel III Key Components
- Basel III Implementation
- Basel III Capital Adequacy
- Basel III Qualifying Capital
- Basel III Capital Buffers and Revised Capital Ratios
- Basel III Implementation of Capital Requirements
- Basel III Securitization
- Basel III Trading Book
- Basel III Counterparty Credit Risk (CCR)
- Basel III Central Counterparties (CCPs)
- Basel III Liquidity Risk, Leverage, and The Financial Crisis
- Basel III Liquidity Coverage Ratio (LCR)
- Basel III Net Stable Funding Ratio (NSFR)
- Basel III Leverage Ratio
- Basel III Pillar 2 Requirements and Implementation
- Basel III Pillar 3 Requirements and Implementation
- Beyond Basel III
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Basel III The Three Pillars Approach
Basel III: Strengthening the System After 2008
- Increasing minimum capital requirements
- Introducing the Capital Conservation Buffer
- Implementing Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR)
- Creating a leverage ratio to avoid excessive borrowing
Basel IV: The Refinement Phase
- Revisions to the standardized approach for credit risk
- Limits on use of internal models to reduce risk variability
- Output floor: Ensures capital calculations do not fall below 72.5% of the standardized approach
- Focus on greater consistency and comparability across banks
Why the Basel Framework Matters to Bankers?
- Risk Management: Helps assess and mitigate exposure to credit, market, and operational risk.
- Compliance: Avoids regulatory penalties and builds trust with regulators and clients.
- Strategic Decision-Making: Informs lending, investment, and liquidity management.
- Global Alignment: Allows smoother international operations and cross-border partnerships.
Real-World Implications
Conclusion
Final thought: Make the Basel Framework a priority in your continuous learning — because in the world of banking, knowledge isn’t just power; it’s protection.