4
Glossary - Basel III
The reduction in credit
especially cheap credit
is essentially a positive
developmentalthough
in the short term it'll
depress economie growth
and be difficult
to adjust to9)
COVER STORY BANKING AFTER BASEL III
Wim Boonstra, Chief Economist:
To make the articles on Basel III in this
edition accessible to all readers, pleasefind
heloii) a brief explanation of the most
comprehensive terminology.
broader economy: less available credit. "This reduction in
credit growth, and especially cheap credit, is essentially
a positive development, although in the short term it'll
depress economie growth and be difficult to adjust to. The
problem is that cheap credit feels good.
For consumers used to buying a house with cheap credit
it's a blow when it's not available. Scale that up, and you
have a very similar situation at the banking level. However,
cheap credit is what fuels bubbles and when bubbles burst,
everyone gets hurt."
One discussion that developed following the credit
crisis was the merits of different banking systems, with
cooperative banking compared and contrasted to the
shareholder-driven commercial banking model. Boonstra
doesn't believe it's possible to say whether Basel lil will have
a greater or lesser impact on one or other of the models,
although he does believe that Rabobank's cooperative
model is less prone to fluctuations during financial cycles.
"I don't think we can say that Rabobank will have an
advantage under Basel III simply because other banks will
have to raise their profitability to be attractive to investors
in order to raise more equity capital. However, I do think it's
fair to point out that Rabobank registers developments in the
market in a less severe way than other banks do, and I view this
as a distinct advantage. Developments at Rabobank are more
gradual, so in the past when the market's gone up we've
heard people comment that Rabobank's a 'slow bank.' And yet
when the market's gone down, they've complimented us on
our stability." So where does that leave the sector between now
and 2019, when Basel III is timetabled for full implementation?
Boonstra: "I hope that regulators take the time to work on full
harmonisation. The moment you have different regulations in
major financial centres it leads to arbitrage, and this is not what
the banking sector needs. We need to have a level playing field
worldwide so that we can introducé a stable financial system
that is sufficiently shock-proof for the long term."
Leverage ratio - A ratio used to calculate the financial
leverage of a company to get an idea of the company's
methods of financing or to measure its ability to meet
financial obligations.
Liquidity coverage ratio (LCR) Designed to ensure
that a bank maintains an adequate level of high-quality
assets that can be converted into cash to meet its
liquidity needs for a 30-day period during a crisis.
Net stable funding ratio (NSFR) Measures the amount
of longer-term, stable sources of funding employed
by an institution relative to the liquidity profiles of
the assets funded and the potential for calls on funding
liquidity arising from off-balance sheet commitments
and obligations.
Securitisation The creation of asset-backed securities.
These are debt securities that are backed by a stream
of cash flows from specific assets.
'Sticky'liabilities - The tendency of funding not to run off
quickly under stress (for example, retail deposits).
Funding In order to carry out their day-to-day business
activities (such as lending) banks need access to funding.
This can come from a number of sources, such as retail
deposits or the wholesale market.
ISSUE 25 0< TOBER 2010 RI WORLD
