The Impact of the New Structural Liquidity Rules on the Profitability of EU Banks

Laura Chiaramonte, Barbara Casu and Roberto Bottiglia
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Laura Chiaramonte: Cattolica University of Milan
Barbara Casu: City University
Roberto Bottiglia: University of Verona

Chapter 1 in Bank Performance, Risk and Securitization, 2013, pp 7-19 from Palgrave Macmillan

Abstract: Abstract One of the upshots of the 2007–2009 financial crisis is the evidence that liquidity risk had been underestimated and largely ignored by regulators. Indeed, the previous Capital Adequacy Accords, Basel I and II, did not explicitly require banks to provision for liquidity risk, as that risk had been considered incapable of threatening the stability of individual banks, let alone the entire banking system. For this reason, unlike credit and market risk, the Basel Accords had not set requirements for liquidity risk. Yet the recent financial crisis has shown how rapidly and acutely liquidity risk, in terms of both market liquidity risk and funding risk, can manifest itself in financial markets and how it can affect the stability of banks and indeed the whole financial system. Thus, the Basel Committee deemed it necessary to remedy the omission and, in the December 2010 final document (so-called Basel III),1 it has promoted the gradual introduction of two internationally harmonized global liquidity standards for banks: the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR), to be introduced by 1 January 2015 and by 1 January 2018 respectively.

Keywords: Total Asset; Commercial Bank; Liquidity Risk; Bank Performance; European Bank (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:pal:pmschp:978-1-137-33209-7_2

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DOI: 10.1057/9781137332097_2

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