Bučková, Veronika – Reuse, Svend
Basel III Global Liquidity Standards: Critical Discussion and Impact onto the European Banking Sector
JEL: G21, G28
Basel III, liquidity coverage ratio LCR, net stable funding ratio NSFR, maturity transformation
Together with the Basel III regulatory equity rules, two liquidity ratios have been published. Resulting from the illiquidity of some banks during the financial crisis in 2008, these ratios shall help to prevent further crisis in the European banking sector. But do they really fulfill their aim? This article presents the new liquidity ratios, the actual liquidity situation in banks and describes the consequences for banks at a simplified example.
It has to be stated that implementing more detailed liquidity frameworks into the banking supervision process is necessary. The financial crisis in 2008 showed that several banks did not have adequate liquidity risk models and processes to prevent illiquidity. But the LCR and the NSFR seem to be wrong methods. Both ratios will increase. The implementation of both ratios has to be done very carefully in order to prevent this.
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