A note on Basel III and liquidity

Abstract

In this article, we obtain numerical results involving new Basel III liquidity regulation. More specifically, we compute the net stable funding ratio in accordance with the prescripts of the proposed banking rules. In this regard, we investigate the effects of shareholder cash flow rights on the aforementioned funding ratio and a non-Basel III liquidity coverage ratio for certain developing countries during the period 2005 Q1 to 2009 Q4. Our study finds that the funding ratio appears to have satisfied Basel III minimum liquidity standards during this period. Also, we conclude that more concentrated cash flow rights result in improved liquidity.

Keywords:

• Basel III
• Net Stable Funding Ratio
• Liquidity Coverage Ratio

JEL Classification:

• G13
• G32

Notes

¹At present, Basel III LCR data are not freely available which makes this liquidity standard difficult to compute. Instead, for the purposes of this study, we consider the LCR to be the ratio of current assets to current liabilities.

² These countries are otherwise known as the BRICS countries.