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Connectedness and ContagionProtecting the Financial System from Panics$
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Hal S. Scott

Print publication date: 2016

Print ISBN-13: 9780262034371

Published to MIT Press Scholarship Online: January 2017

DOI: 10.7551/mitpress/9780262034371.001.0001

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Liquidity Requirements

Liquidity Requirements

Chapter:
(p.183) 15 Liquidity Requirements
Source:
Connectedness and Contagion
Author(s):

Hal S. Scott

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262034371.003.0015

This chapter discusses Basel's revised liquidity requirements. The Basel Committee adopted a new liquidity standard for phase-in at the start of 2015, to be completed by 2019. Basel's liquidity metric, known as the liquidity coverage ratio (LCR), requires banks to hold unencumbered high-quality assets sufficient to meet all outstanding 30-day-or-fewer liabilities. Basel has also proposed a longer term metric called the net stable funding ratio (NSFR) designed to secure institutions with enough liquidity support for one year, to be implemented by January 2018. The components of “stable funding” are capital, preferred stock, other liabilities with maturities of more than one year, plus “stable” deposits. Beyond LCR and NSFR, the Basel III proposal introduces other measurements oriented at facilitating supervisory monitoring of institution liquidity. Their focus is on maturity mismatching, wholesale funding dependency, and amount of available unencumbered assets. The remainder of the chapter deals with US implementation of Basel liquidity requirements.

Keywords:   liquidity regulation, liquidity requirements, financial regulation, regulatory reform, Basel Committee on Banking Supervision, liquidity coverage ratio, net stable funding ratio, Basel III, monetary policy

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