Right, so let's have a look at Basel III. Right after the financial crisis of 2008, it became pretty clear that regulation in the banking sector needed to improve even further. So Basel II was not enough. We needed to go into Basel III. Regulators failed. They needed to strengthen regulation further in order to improve the bank sector's ability to absorb shocks, they weren't very good at that in 2008, they wanted to improve risk management, and they wanted to improve transparency and disclosures given by the bank. Also, they wanted to reduce pro-cyclicality and they wanted to reduce systemic risk. So following the financial crisis, regulators looked at increasing the capital adequacy of banks and other regulated entities, and they did this by changing a number of different things. First of all, they launched a much tighter definition of tier one capital. They said common stock and retained earnings need to make up the majority of tier one capital. No more creative instruments can go in there, we need this to be very clean, and in fact, the common equity tier one, CET One, is by far the most important capital measure in the Basel III. Regulators really wanted to narrow down and say, we need our capital definitions to be a reflection of our loss absorption ability, so a much tighter definition of tier one capital.

Secondly, they said we need higher minimum capital ratios. Our common equity tier one to risk-weighted assets need to be a minimum of 4.5%. This is a lot higher than under Basel II. On top of that, they said we need a capital conservation buffer for future losses and that needs to be 2.5% of risk-weighted assets, and this one is curious and interesting because if you're below that capital conservation buffer, the regulator might put constraints on the bank in terms of paying dividends, doing share buybacks, and even paying bonuses. So unless you're over that capital conservation buffer, they're gonna put restraints on you paying dividends, and then they said, on top of that, we need a counter-cyclical buffer. So in the event of unusually high credit buildup, we might smack on an extra 2.5% of CET One in relationship to your risk-weighted assets, and this counter-cyclical buffer is set by the local bank supervisor, the local bank regulator, and then they said, well, to punish really big banks, also known as "two big to fail," we're gonna add a systemically important financial institution buffer. That can be another 2.5% of risk-weighted assets. In addition to this, they said, let's also look at a non-risk-based leverage ratio, and a non-risk-based leverage ratio basically says, let's look at our tier one capital and compare it to our total exposure. Let's not make any adjustments for risk. We're just gonna look at the headline numbers here, tier one capital to total exposure, and that needs to be 3% or over, and on top of that, the regulator said, we also need to monitor liquidity in banks, so we're gonna launch a liquidity coverage ratio, and then finally, they got worried about funding in banks, and we saw that some banks went under in 2008 for funding problems. So they launched a net stable funding ratio. So this is a huge number of new factors come into play here under Basel III, and again, the regulators were looking at strengthening regulation further to improve the ability of the banking sector to absorb shocks and to reduce the systemic risk in the banking system.