The global financial crisis of 2007-2009 exposed fundamental weaknesses in how banks measured and managed risk, and the repercussions were felt by economies all over the world. In response, policymakers sought to rebuild trust and resilience in the global financial system with a wide-ranging package of regulatory reforms. At the heart of this effort was the Basel III framework, a globally agreed set of standards to strengthen the regulation, supervision and risk management of banks.

The Basel III framework was developed by the Basel Committee on Banking Supervision, an international body comprising 45 central banks and bank supervisors from 28 jurisdictions. First established in 1974, the Basel Committee is the primary global standard setter for the prudential regulation of banks. Basel III is a comprehensive set of rules designed to strengthen banks’ capital positions, improve risk management and promote stability in the banking sector. Although not yet fully implemented in every jurisdiction, Basel III is now the foundation of banking regulation worldwide, shaping the way institutions operate and interact with markets.

As Basel III has been developed and implemented over the past 15 years, challenges have emerged. Key jurisdictions have moved at different speeds, interpreting and implementing the global standards in their own way. Today, banks must navigate a complex web of requirements, with significant implications for competition, risk and the functioning of global capital markets.

ISDA is a global organization with 1,000 member institutions from 78 countries. ISDA believes capital requirements should be appropriate and risk-sensitive to support deep and liquid markets. If capital requirements are set too high, this can lead to reduced access to funding, a lack of hedging solutions and increased vulnerability to external shocks. It’s also important that the rules are as consistent as possible for globally active banks, or else it will be more difficult for them to effectively manage their risks and service their clients.

This paper presents some of the key areas where ISDA has been focusing its advocacy in relation to the Basel III market risk framework, but it is not intended to be an exhaustive list of issues. For a more comprehensive overview, reference should be made to the industry’s extensive technical comments in response to key consultations on Basel III implementation.

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