Stability.

CAPITAL ADEQUACY

The Basel Accord Standards consist of recommendations issued by the Basel Committee on Banking Supervision (BCBS) as non-binding guidelines for the supervision of banks by central banks. When adopted by individual central banks, these recommendations become enforceable minimum standards for banks. Currently, there are four Accords that collectively form the Basel Framework, which also includes upcoming proposals by the BCBS.

Basel I (1) was published in 1988 defining minimum capital requirements for banks and enforced by G-10 countries in 1992.
Basel II (2) was published in 2004 expending and enhancing Basel I proposals. It was obvious expanded proposal was behind market practices by banks.
Following 2007-2008 global financial crisis, Basel III (3) was published in November 2010 with inclusion of liquidity.
Basel IV (4) was published in 2020 as an enhancement to Basel 3 for phase implementation from 2023.
Basel Accord V (5)?. This is inevitable with introduction of AI, ML, new financial markets and products.

Pillar I Minimum Capital

Pillar II Supervisory Review

Pillar III Disclosures

Capital Adequacy Trigger Events

Capital adequacy represents the amount of capital necessary to safeguard depositors' funds. It is classified into tiers (1 and 2) to meet regulators' predetermined requirements for entities. The capital reserve can be seen as a statutory minimum and is calculated based on the Capital Adequacy Ratio, which is the sum of Tier 1 and Tier 2 capital divided by the Risk Weighted Assets.

Economic Scenarios

Economic events could and tend to be external factors that causes business failures. It impacts and creates instability for internal factors yet such adverse events must be considered and factored in losses calculations.

Credit Risk

Factor probability of default based on exposed position of an entity. Credit risks are constituants of many elements including concentration risk, credit ratings downgrade, economic slowdown (country risk).

Market Risk

Market risk (Systematic risk as cannot be eliminated through diversification) of loss to position held caused by movement in market valuation (prices, rates and volatilities). Recession and political impacts market risk.

Operational Risk

Operational riskmust be planned and factored into consideration on understanding that there could be failures failures from the norm. It could be delibrate acts of sabotage by employees or genuine errors.

Liquidity Risk

Liquidity risk is a core survival indicator espercially for short-term funding for obligations. Though it could be managed to an extent depending on severity and ability to raising financing from asset or stakeholders.

Scenario Stress Testing

Regardless of degree of planning true picture of predictive forecasts are unknown. A number of scenarios must be considered in models to give confidence of surviving in occurence of certain adverse events.