What do both Basel II and Basel III guidelines emphasize?

Both Basel II and Basel III guidelines emphasize stronger capital risk management as a fundamental principle to enhance the stability and resilience of the banking sector. Basel II introduced the concept of a more risk-sensitive approach to capital requirements, encouraging banks to hold capital proportional to the risk profile of their exposures. This was a significant shift from previous frameworks, ensuring that banks maintained adequate capital buffers to absorb losses.

Basel III built upon the foundations laid by Basel II, responding to shortcomings identified during the global financial crisis. It introduced stricter capital requirements, which included higher quality capital, specifically common equity, and a greater emphasis on maintaining a capital conservation buffer. The underlying theme in both frameworks is to ensure that banks can manage their capital in relation to the risks they undertake, thereby promoting financial stability.

Increased government oversight, while relevant to the context of regulating banking practices, is not a central focus of either Basel II or Basel III, as these guidelines are primarily about the banks' internal risk management and capital adequacy. Similarly, flexible capital requirements and reduced credit risk assessments do not align with the goals of these frameworks, which prioritize the overall robustness and prudence in capital management rather than flexibility or a reduction in assessment standards.