CAA
U.S. federal statute regulating air emissions and quality
Basel III
Global framework for bank capital, leverage, and liquidity standards.
Quick Verdict
CAA regulates US air emissions for all industries via NAAQS and permits, ensuring clean air compliance. Basel III mandates bank capital, liquidity and leverage for financial stability. Companies adopt CAA for environmental legal compliance; Basel III for prudential resilience.
CAA
Clean Air Act (42 U.S.C. §7401 et seq.)
Key Features
- Establishes NAAQS for six criteria pollutants
- Mandates SIPs for state attainment planning
- Imposes NSPS and MACT technology standards
- Requires Title V operating permits consolidation
- Enables cooperative federalism with enforcement tools
Basel III
Basel III: Finalising post-crisis reforms
Key Features
- Higher CET1 capital minimum (4.5% of RWA)
- Non-risk-based leverage ratio (3% minimum)
- Liquidity Coverage Ratio for 30-day stress
- Net Stable Funding Ratio for funding stability
- Capital buffers with distribution constraints
Detailed Analysis
A comprehensive look at the specific requirements, scope, and impact of each standard.
CAA Details
What It Is
Clean Air Act (CAA), codified at 42 U.S.C. §7401 et seq., is the U.S. federal statute governing air pollution. It uses **cooperative federalismEPA sets national floors like NAAQS; states implement via SIPs. Scope covers stationary/mobile sources, criteria pollutants, HAPs; approach blends ambient outcomes with technology-based controls.
Key Components
- NAAQS (six pollutants, primary/secondary standards)
- SIPs, NSPS (§111), NESHAPs/MACT (§112), mobile standards (Title II)
- Title V permits, NSR/PSD, acid rain trading (Title IV), ozone protection (Title VI)
- Enforcement (§113 penalties, citizen suits); no central certification, site-specific permits.
Why Organizations Use It
Mandatory for major sources to avoid fines, sanctions, shutdowns. Manages nonattainment risks, ensures permitting for expansions. Delivers ESG benefits, stakeholder trust, operational continuity amid enforcement/data scrutiny.
Implementation Overview
Phased: applicability audit, emissions inventory, permitting (Title V/NSR), install controls/CEMS, ongoing monitoring/reporting. Targets industries (energy, manufacturing); U.S.-wide; requires SIP compliance, audits, electronic reporting.
Basel III Details
What It Is
Basel III is the international regulatory framework by the Basel Committee on Banking Supervision (BCBS), developed post-2007-2009 crisis. This prudential standard strengthens bank resilience via enhanced capital quality/quantity, leverage constraints, and liquidity buffers. It uses a risk-based approach with complementary non-risk metrics and buffers.
Key Components
- **Pillar 1Capital ratios (CET1 4.5%, Tier 1 6%, Total 8%), leverage ratio 3%, LCR/NSFR 100%, buffers (CCB 2.5%, CCyB up to 2.5%, G-SIB/D-SIB).
- **Pillar 2Supervisory review (ICAAP) for specific risks.
- **Pillar 3Granular disclosures for RWA comparability. No central certification; national compliance.
Why Organizations Use It
Mandated for banks, it mitigates systemic risks, improves funding costs, builds investor trust, and enables strategic asset allocation. Enhances comparability and reduces model arbitrage.
Implementation Overview
Phased transformation: gap analysis, data/IT upgrades, model validation, governance/training. Applies to global banks; ongoing reporting/stress testing required.
Key Differences
| Aspect | CAA | Basel III |
|---|---|---|
| Scope | Air emissions, NAAQS, stationary/mobile sources | Bank capital, liquidity, leverage ratios |
| Industry | All industries, US-wide, stationary/mobile sources | Banking sector, global with national implementation |
| Nature | Mandatory US federal environmental law | Global prudential standards, nationally enforced |
| Testing | CEMS, stack tests, Title V permit monitoring | Stress tests, ICAAP, model validation |
| Penalties | Fines, sanctions, FIPs, citizen suits | Capital add-ons, dividend restrictions, fines |
Scope
Industry
Nature
Testing
Penalties
Frequently Asked Questions
Common questions about CAA and Basel III
CAA FAQ
Basel III FAQ
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