Basel Norms set global banking standards. Regulators enforce them worldwide.
First, Basel I focused on credit risk. Banks maintained 8% capital adequacy ratio. Therefore, they held more capital against loans.
Moreover, Basel II introduced three pillars. Pillar 1 calculated minimum capital. Pillar 2 supervised banks closely. Pillar 3 demanded market disclosure. As a result, risk management improved significantly.
Additionally, Basel III strengthened rules after the 2008 crisis. It raised the quality of capital. Banks now hold more common equity. Consequently, they resist shocks better.
Furthermore, liquidity requirements appeared in Basel III. The Liquidity Coverage Ratio ensures short-term survival. The Net Stable Funding Ratio promotes long-term stability. Thus, banks avoid sudden cash shortages.
Next, leverage ratio limits excessive borrowing. Banks maintain at least 3% Tier 1 capital against total assets. Therefore, they avoid over-leveraging.
Moreover, countercyclical buffers build extra capital in good times. Banks release these buffers during downturns. As a result, lending continues smoothly.
In addition, Basel III Endgame refines rules further. It tightens risk weights for large banks. Thus, global standards become even stricter.
Overall, Basel Norms protect the financial system. They force banks to stay safe and resilient. Therefore, economies face fewer banking crises.