The Handbook of the Basel Framework

Why should banks be bailed out?

Because when banks fail, the consequences can extend far beyond their shareholders and creditors, disrupting lending, confidence, and the wider economy.

Prudential regulation seeks to reduce both the likelihood and the economic cost of such failures by requiring banks to maintain adequate capital and liquidity, manage their risks prudently, and prepare for recovery or orderly resolution. But how much capital and liquidity is enough to avoid a bailout?

This handbook provides a comprehensive and practical guide to this question. With a particular focus on the European Union’s implementation of the final Basel III reforms—often referred to as Basel IV—the book explains the regulatory framework established through CRR3 and CRD VI. It examines not only what the rules require, but also the economic rationale and policy objectives underlying them.

Combining clear explanations with worked examples and step-by-step calculations, the book covers the foundations of banking and risk; own funds and eligible liabilities; credit, market, counterparty credit, CVA, and operational risk; standardised and internal-model approaches; the leverage ratio; capital buffers; liquidity requirements; MREL and TLAC; Pillar 3 disclosures; and the practical calculation and reporting of regulatory requirements. It also considers international differences and emerging issues, including cryptoassets and climate-related risks.

Written for banking and consulting professionals, this book is a concise and user-friendly resource on the latest EU prudential framework. It is also suitable for students who are interested in these topics. It provides a reliable, practical reference on prudential requirements.