Basel III complexity in a picture

The image below is drawn from a post on the Bank Underground blog that explores the extent to which the Basel capital framework has become more complex and harder to read

The overall conclusion (no surprises) is that Basel III is longer and harder to read. Somewhat counterintuitively, the authors conclusion from the image above is that there is one measure where Basel III is simpler compared to Basel II.

Basel II rules need more context than their counterparts with the average node having a chain length of .28 higher than Basel III. Relatedly, the table shows that alterations to rules in Basel III have a smaller knock on effect to rules further down the chain. While Basel III is significantly larger than the previous framework, its network is ‘simpler’, fewer references are made between rules, and chains are on average smaller.

Tony – From the Outside

Author: From the Outside

After working in the Australian banking system for close to four decades, I am taking some time out to write and reflect on what I have learned. My primary area of expertise is bank capital management but this blog aims to offer a bank insider's outside perspective on banking, capital, economics, finance and risk. View all posts by From the Outside