The Basel framework sets minimum bank capital and liquidity standards. Basel II built three pillars: minimum capital (Pillar 1), supervisory review (Pillar 2) and market discipline/disclosure (Pillar 3). Basel III, after 2008, raised the quality and quantity of capital and added liquidity rules.

🏦CET1

💧LCR

🔒NSFR

⚖️Leverage

1️⃣Pillar 1minimum capital for credit, market, op risk

2️⃣Pillar 2supervisory review, ICAAP

3️⃣Pillar 3disclosure & market discipline

Basel III added the liquidity coverage ratio (LCR) — enough high-quality liquid assets to survive a 30-day stress — and the net stable funding ratio (NSFR) — stable funding over a one-year horizon — plus a leverage ratio and capital buffers.

Metric	Horizon	Purpose
CET1 ratio	—	Core capital / RWA
LCR	30 days	Short-term liquidity stress
NSFR	1 year	Stable funding structure
Leverage ratio	—	Capital / total exposure (non-risk-based)

EXAM TIP LCR and NSFR target liquidity; CET1 and the leverage ratio target solvency. A bank can be solvent yet fail from a liquidity run — keep the two ideas separate.

⚖️ FRM Exam Prep (Parts I & II)