The impact of Basel III on systemic risk and counterparty risk

Market analysis: Basel III

The BIS tower in Basel, home to the Basel Committee on Banking Supervision

One of the key shortcomings of the first two Basel Accords was that they approached the solvency of each institution independently. The recent financial crisis highlighted the additional systemic risk that the failure of one large institution could cause the failure of one or more of its counterparties, which could then trigger a chain reaction.

Basel III addresses this issue in two ways: firstly by significantly increasing capital buffers for risks related to the interconnectedness of the major

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