The initial phase of B3R revised areas of the risk-weighted capital framework by tweaking global standards for market risk, counterparty credit risk and securitisation.
The initial phase of Basel III reforms (B3R) focused on improving the quality of bank regulatory capital by focusing on common equity tier 1 (CET1) capital so that banks can withstand losses in times of stress. Other forms of loss-absorbing capital, namely additional tier 1 (AT1), can also be used. Only one jurisdiction, Switzerland, used AT1 as loss-absorbing ahead of CET1.
The reforms emphasised that capital buffers should be built up in good times and drawn down in times of stress to limit procyclicality. B3R specified a minimum leverage ratio requirement to constrain excess leverage in the banking system and complement the risk-weighted capital requirements. It also introduced liquidity ratios such as the Liquidity Coverage Ratio and Net Stable Funding Ratio to minimise liquidity risk.
