ABSTRACT
This chapter examines the most crucial aspects of micro-prudential regulation, namely, capital adequacy and liquidity standards. Such standards set by the Basel Committee on Banking Supervision (BCBS) aim to address the risk that banks will become unable to pay their debts as they fall due. The discussion explores the previous iterations of these principles (Basel I and II) before focusing on the currently applicable standards set by Basel III as implemented by the EU Capital Requirement Directive IV and Regulations. The Basel III minimum capital and liquidity standards increased the resilience of the global banking system but did not adequately address the “too big to fail” problems. The new rules leave authorities with the same choices should a systemically important bank again find itself on the brink of failure: accept financial and economic turmoil or inject taxpayer money to keep it afloat. The chapter concludes with an overview of the proposals for a future Basel IV and a tentative discussion of the possible impact of Brexit on the capital adequacy of UK banks.
