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Collateral can be viewed as a means of ensuring that the defaulter pays in the event of a default. Capital, in contrast, is a way of holding sufficient reserves to enable the non-defaulting entity to manage the loss arising from the default. Capital therefore is a mechanism in which the non-defaulting party ‘pays’ for the default. Regulatory capital is the amount of capital that a financial institution must hold in order to satisfy its regulator. The Basel Accords are a series of regulatory frameworks that provide a methodology for calculating the amount of capital required to support banking businesses that have been proposed by the international body the Basel Committee on Banking Supervision within the Bank for International Settlements (BCBS, 2012a). There have been four major developments of the regulatory capital framework, known as Basel I introduced in 1988, Basel II introduced in 2006, Basel II.5 introduced in the immediate aftermath of the 2008 financial crisis and Basel III introduced in 2010 for implementation on 1 January 2013 (BCBS, 2012d). Implementation of the Basel framework is at varying stages globally with the European Union being one of the most advanced through Capital Requirements Directive 4 or CRDIV. The impact of capital on pricing derivatives is discussed in Chapter 12.