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Basel III outlines, among otherthings, new liquidity
requirements stipulating that banks maintain enough
liquid assets to survive a 30-day crisis. But how will these
requirements work and what will be the impact on
the banking sector?
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One of the key areas of the July 2010 update of the Basel III proposals on
Banking Supervision, covered banks' liquidity requirements, and highlights
two main topics: the ability of banks to survive for a 30-day period during
a financial crisis, calculated using the liquidity coverage ratio (LCR); and the
use of a net stable funding ratio (NSFR), designed to force banks to hold
more long-term assets to balance their long-term liabilities, thus eliminating
the mismatch of funding. Pieter Emmen, Head of Group Risk Management
at Rabobank, believes that Basel III will impact banks primarily on two fronts:
the requirement to conserve more capital, and the need to adapt to the new
liquidity and net stable funding ratios. Emmen: "Although the requirements
have been softened, with the NSFR for mortgages reduced from 100 percent
to 65 percent, Rabobank will probably still be short by around
EUR 30 billion to EUR 50 billion, which will have an impact on the balance sheet
and the business. Flowever, since the rules don't come into force until 2018,
we have enough time to adjust our balance sheet to the new reality. Essentially
this will mean bringing in more long-term funds, attracting more sticky
liabilities (such as retail deposits), and reducing our long-term assets."
ISSUE 25 OCI OBER RI WORLD
