ABSTRACT
This chapter discusses the main changes in capital requirements under the Basel III revision. It argues that the risk-weighted capital requirements are the main tool of banking regulation in the European Union legislation, although with amended risk weights. It is clear that the Basel Committee's intention was to avoid a repeat of big banks lending to special purpose vehicles in order to avoid capital requirements, something that was very common before the financial crisis. Beyond the risk-weighted capital requirements, the Basel Committee has introduced new measures that show concern not only about the evaluation of the risk added by any incremental new exposure but also about the total risk, which, presumably, is not the sum of the risks of the single exposures. The leverage ratio should be more important to mitigate financial fragility as recognized by H. P. Minsky, who was keen to propose measures that decrease leverage by banks and thus the danger of crises and potential state intervention.
