Basel III Liquidity Regulation and Its Implications


The financial crisis of 2007-2009 had a deleterious effect on liquidity in the global banking system, resulting in the introduction of the new Basel III liquidity regulation. In this book, we apply such regulation to global liquidity data for 391 hand-selected LIBOR-based banks in 38 countries for the period 2002 to 2012. We show how to develop a framework for proposed Basel III liquidity regulation and demonstrate how to decide on methodologies for studying the aforementioned regulation. Basel III emphasizes both the use of liquidity coverage ratios (LCR) and net stable funding ratios (NSFR) as measures of liquidity risk. We show how these ratios may be approximated to measure risk and how liquidity affects bank insolvency and failure. Using LIBOR-OISS, we also demonstrate how market-wide liquidity risk was a major predictor of bank failures in 2009 and 2010, while idiosyncratic liquidity risk (determined by other liquidity risk measures) was a less reliable predictor. Further, we determine how to analyze the connections between Basel III liquidity regulation and bank capital. Finally, we discuss how the implementation of Basel III liquidity regulation will affect sovereign credit as well as macroeconomic variables such as GDP, investment, inflation, consumption, personal disposable income, personal savings and employment. The book is intended to be used in executive banking courses, advanced undergraduate, Masters and MBA courses in banking; by banking practitioners, consultants and in consulting seminars as well as banking libraries.


About the Author(s)

Janine Mukuddem-Petersen

Janine Mukuddem-Petersen is currently a full professor at North-West University, South Africa. She grew up in Matroosfontein, Cape Town, and received a BSc(Hons) from the University of the Western Cap…

Mark Petersen

Mark Petersen has published a total of more than 105 internationally peer-reviewed books, book chapters, journal articles and conference proceedings papers that have been cited more than 500 times. Th…

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Pub Date

May 7, 2014





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