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Basel III Liquidity Regulation and Its Implications by Janine Mukkudem-Petersen, Mark Petersen

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Chapter 3

Basel III Liquidity Regulation and Bank Failure

In the Basel III Accord, liquidity risk is measured via the liquidity coverage ratio (LCR) and net stable funding ratio (NSFR). In this chapter, we estimate the LCR and NSFR by applying approximation techniques to banking data from a cross section of countries. We find that these Basel III risk measures have low information values and are relatively poor indicators of liquidity risk.1

Our results, in this chapter, show that as the LCR increases or decreases the probability of failure decreases or increases for both Class I (internationally active banks with Basel III Tier 1 capital (BIIIT1K) in excess of $4 billion) and Class II (the rest) banks. The same is true for the NSFR of Class ...

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