First, notwithstanding the severity and multiplicity of the adverse shocks, India's financial markets have shown admirable resilience. This is in large part because India's banking system remains sound, healthy, well capitalized and prudently regulated. Second, our comfortable reserve position provides confidence to overseas investors.
During the crisis, it turned out that banks had insufficient buffers to withstand large losses. The Basel III framework therefore sets tighter capital standards. Most importantly, it requires that the quality of bank capital be improved. A larger part of capital must consist of common equity, the most loss absorbing type. Furthermore, banks will have to increase the size of their capital buffer.