Basel III Liquidity Regulation and Its Implications

Liquidity involves the degree to which an asset can bebought or sold in the market without affecting its price.The 2007 to 2009 financial crisis was characterized by a decreasein liquidity and necessitated the introduction of BaselIII capital and liquidity regulation in 2010. Inside, you’lllearn how such regulations are applied on a broad crosssectionof countries in order to understand and demonstratethe implications of Basel III.This book summarizes the defining features of the BaselI, II, and III Accords and their perceived shortcomings, aswell as the role of the Basel Committee on Banking Supervision(BCBS) in promulgating international bankingregulation.Basel III quantifies liquidity risk by using the measuresliquidity coverage ratio (LCR) and net stable fundingratio (NSFR). This book discusses approximationtechniques that may be used to estimate these liquiditymeasures. Inside, the authors highlight the connectionsbetween liquidity creation and bank capital and provideyou with the details of an investigation of the risks liquiditycreation generates for banks. In addition, we considerthe impact of the implementation of Basel III liquidityregulation on macroeconomic variables such as GDP, investment,inflation, consumption, income, savings, andemployment.