scholarly journals Basel III Liquidity Risk Measures and Bank Failure

2013 ◽  
Vol 2013 ◽  
pp. 1-19 ◽  
Author(s):  
L. N. P. Hlatshwayo ◽  
M. A. Petersen ◽  
J. Mukuddem-Petersen ◽  
C. Meniago
Keyword(s):  
Risk Measures ◽  
Liquidity Risk ◽  
Banking Regulation ◽  
Global Scale ◽  
Basel Ii ◽  
Bank Failure ◽  
Bank Failures ◽  
Basel Iii ◽  
Coverage Ratio ◽  
Discrete Time Hazard Model

Basel III banking regulation emphasizes the use of liquidity coverage and nett stable funding ratios as measures of liquidity risk. In this paper, we approximate these measures by using global liquidity data for 391 hand-selected, LIBOR-based, Basel II compliant banks in 36 countries for the period 2002 to 2012. In particular, we compare the risk sensitivity of the aforementioned Basel III liquidity risk measures to those of traditional measures such as the nonperforming assets ratio, return-on-assets, LIBOR-OISS, Basel II Tier 1 capital ratio, government securities ratio, and brokered deposits ratio. Furthermore, we use a discrete-time hazard model to study bank failure. In this regard, we find that Basel III risk measures have limited ability to predict bank failure when compared with their traditional counterparts. An important result is that a higher liquidity coverage ratio is associated with a higher bank failure rate. We also find that market-wide liquidity risk (proxied by LIBOR-OISS) was the major predictor of bank failures in 2009 and 2010 while idiosyncratic liquidity risk (proxied by other liquidity risk measures) was less. In particular, our contribution is the first to achieve these results on a global scale over a relatively long period for a variety of banks.

scholarly journals Analysis of bank failure: An application of CVAR methodology on liquidity

2017 ◽  
Vol 7 (2) ◽  
pp. 18-27
Author(s):  
Mubanga Mpundu
Keyword(s):  
Balance Sheet ◽  
Class Ii ◽  
Bank Failure ◽  
Class I ◽  
Basel Iii ◽  
Continuous Increase ◽  
Coverage Ratio ◽  
Creative Commons ◽  
Liquidity Measures ◽  
Balance Sheet Liquidity

JOURNAL MENU ANALYSIS OF BANK FAILURE: AN APPLICATION OF CVAR METHODOLOGY ON LIQUIDITY DOWNLOAD THIS ARTICLE Mubanga Mpundu ORCID logo DOI:10.22495/rgcv7i2art2 Creative Commons License This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License. Abstract In this paper, balance sheet liquidity data was analyzed comprising of 157 Class I and 234 Class II banks. Class I banks are categorized as those with tier 1 capital in excess of $4 billion and internationally active while Class II banks are the rest. A Cointegrated Vector Autoregressive (CVAR) approach was used on balance sheet liquidity data to ascertain the behavior of variables in relation to bank failure. The study also demonstrated the nature of each of the variables containing estimated Basel III and Traditional liquidity measures for Class I and II banks. The estimated Basel III liquidity standards were made up of the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR) while the liquidity measures involved Government Securities Ratio (GSR) and Brokered Deposit Ratio (BDR). Results showed that a response of Net Stable Funding Ratio to a shock in Liquidity Coverage Ratio decreased in the first quarter and a steady continuous increase in the next quarters was observed. A shock on the Liquidity Coverage Ratio therefore would cause banks to increase their level of Net Stable Funding Ratio. This explains why the Liquidity Coverage Ratio is considered for a short term stress period of 30 calender days while the Net Stable Funding Ratio will be considered for a longer stress period of 1 year when fully implemented by banks.

Banking Regulation in Hard Times: Business Cycles, Bank Capital, and the Bank Failure - Credit Crunch Dilemma

2002 ◽  
Vol 22 (1) ◽  
pp. 61-75 ◽  
Author(s):  
Thomas Bernauer ◽  
Vally Koubi
Keyword(s):  
Business Cycles ◽  
Total Population ◽  
Banking Regulation ◽  
Bank Failure ◽  
Credit Crunch ◽  
Bank Failures ◽  
Bank Capital ◽  
Capital Asset ◽  
Policy Makers ◽  
Hard Times

Restrictive policies aimed at reducing the likelihood of bank failures during recessions tend to increase the probability of a credit crunch. We examine whether this policy-dilemma is empirically observable, and whether policy-makers concentrate more on preventing bank failures or avoiding a credit crunch. We find that although capital-asset ratios in the total population of US banks in the 1990s are pro-cyclical, the most vulnerable banks (substantially undercapitalized ones) tend to increase their capital-asset ratios during recessions. These findings suggest that policy-makers are indeed experiencing a dilemma, and that they try to balance the relative probabilities of the two evils: they force the weakest banks to improve their capital-asset ratios while mitigating the risk of a credit crunch by accepting a reduction in the capital-asset ratios of less vulnerable banks.

The information content of Basel III liquidity risk measures

2014 ◽  
Vol 15 ◽  
pp. 91-111 ◽  
Author(s):  
Han Hong ◽  
Jing-Zhi Huang ◽  
Deming Wu
Keyword(s):  
Information Content ◽  
Risk Measures ◽  
Liquidity Risk ◽  
Basel Iii

scholarly journals Evolución e impacto de la regulación bancaria internacional hasta Basilea III: el caso de América Latina = Evolution and impact of international banking regulation until Basel III: The case of Latin America

2013 ◽  
pp. 147
Author(s):  
Cristina Gutiérrez López
Keyword(s):  
Latin America ◽  
Financial Crisis ◽  
Latin American ◽  
Financial System ◽  
Banking Regulation ◽  
Basel Ii ◽  
Basel Iii ◽  
International Banking ◽  
Basel Accords ◽  
America Latina

<p>La crisis financiera ha cuestionado la efectividad de los Acuerdos de Basilea como herramienta de regulación y supervisión bancaria a nivel internacional, especialmente por la coincidencia temporal de Basilea II y los problemas del sector bancario. En el caso de América Latina, esto se une tanto a las particularidades de su sistema financiero, que ha afrontado reformas muy significativas en los últimos años, como a la forma diferencial en que la crisis financiera se ha manifestado.<br />El artículo revisa las características del esquema de regulación bancaria internacional hasta llegar al nuevo Acuerdo de Basilea III y su previsible adaptación al caso latinoamericano, con especial interés sobre los efectos en la financiación y prociclicidad.</p><p>The financial crisis has questioned Basel Accords effectiveness as regulatory and supervisory tools in the international banking area, especially because Basel II was firstly applied when banking problems started. In the Latin America case, this happens in a particular financial system, which has suffered significant reforms over the last years, and where the financial crisis has behaved in a different way.<br />The paper analyses the main characteristics of the international banking regulatory framework until current Basel III Accord. It also addresses its foreseeable adaptation to the Latin American context, with special emphasis on funding and pro-cyclicality</p>

scholarly journals The impact of liquidity risk on bank profitability: some empirical evidence from the European banks following the introduction of Basel III regulations

2019 ◽  
Vol 18 (4) ◽  
Author(s):  
Olga Golubeva ◽  
Michel Duljic ◽  
Ripsa Keminen
Keyword(s):  
Positive Impact ◽  
Weighted Least Squares ◽  
Research Question ◽  
Liquidity Risk ◽  
Basel Iii ◽  
Data Set ◽  
Bank Profitability ◽  
Coverage Ratio ◽  
European Banks ◽  
The Impact

Research Question: The study investigates the impact of liquidity on bank profitability following implementation of the Basel III regulations. Motivation: The theoretical framework of the paper draws upon previous research (Athanasoglou et al., 2008; Arif & Nauman Anees, 2012 and Dietrich et al., 2014) and assumes liquidity ratios to have a varying influence on bank profitability, depending upon a bank's specific and macroeconomic indicators. Idea: This study considers multiple proxies of bank liquidity, including Liquidity Coverage Ratio, a new measure inspired by the Basel III framework, and Loan-to-deposit and Financing gap ratio. Alongside traditionally-applied profitability measures, Earnings before Taxes, Depreciation and Amortisation are assumed to be alternative proxies. Data: In the study, a data set of 45 European banks with 180 observations during 2014-2017 and 37 observations for 2018 has been analysed. Tools: The study proposes a quantitative model based upon Ordinary Least Squires techniques complemented by Weighted Least Squares regressions analysis. Findings: The alternative liquidity risk measures have a significant and positive impact only on some profitability proxies, and an insignificant effect on others. The Basel III liquidity measure, LCR, was an insignificant contributor to all return proxies, which requires further investigation. The results also indicate that an increase in bank size and net provision for loan losses decreases profitability proxies. We also found mixed results concerning the effects of deposits and securities gains and losses on bank profits, and provided possible explanation.

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