BASEL III CAPITAL REFORMS AND BANK STABILITY IN A CHANGING ENVIRONMENT

The global financial system is operating in an environment marked by heightened geopolitical uncertainty, economic volatility, and rapid technological change. These developments have increased the complexity of financial regulation and intensified concerns about systemic risk, particularly in relation to large and interconnected financial institutions. In response, post-crisis regulatory reforms have placed greater emphasis on bank capital adequacy as a central tool for enhancing financial stability. This paper examines the evolution of capital regulation under the Basel framework, with particular attention to Global Systemically Important Banks (G-SIBs) in the United States and the euro area. The analysis reviews the shift from Basel I and II to Basel III, highlighting the introduction of higher-quality capital requirements, expanded risk-weighted asset calculations, and additional capital buffers aimed at strengthening banks loss-absorbing capacity. Existing empirical studies present mixed evidence regarding the effectiveness of these measures. While higher capitalization is generally associated with greater resilience and improved crisis performance, concerns remain about regulatory complexity, pro cyclicality, and the potential impact of stricter requirements on lending and financial intermediation. Drawing on recent G-SIB assessments and stress test evidence, the paper shows that despite improvements in aggregate capital ratios, a meaningful share of banks remains vulnerable under adverse macroeconomic conditions, particularly given strong linkages with non bank financial institutions. The findings support the view that higher and more robust capital requirements can play an important role in limiting systemic risk. At the same time, the results underscore the need for a balanced regulatory framework that strengthens financial stability without unduly constraining banks ability to support the real economy.