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Liquidity Requirements For Basel Iii Essay

301 words - 2 pages

Liquidity Requirements For Basel III
The Basel Committee was birthed to aid the banking sector’s ability to deal with the impact of the changing financial environment. The committee hopes to improve risk management through times of financial and economic stress. These goals are executed through creating criteria for each bank to follow to regulate and improve management. The Basel Committee has outlined the regulations through a set of reform measures. The first ...view middle of the document...

Currently the efforts of the Basel Committee are outlined in Basel III, which aims to strengthen banks’ transparency through requirements of proper leverage ratios and capital requirements.
The Basel Accords are built upon one another to better improve requirements. It directs banks that hold riskier assets to have more cushion to absorb the risk known as capital on hand so the portfolio is safer should a financial change occur. This is regulated by the publication made in the notes of the balance sheet. Banks must also maintain higher common equity including capital cushioning of 2.5% of assets.
Liquidity requirements of Basel III are outlined in the Liquidity Coverage Ratio (LCR). It promotes short-term resilience of the bank’s liquidity risk profile. The bank must hold stock of high quality liquid assets (HQLA) that can easily be converted to cash in private markets to meet liquidity needs for a 30-day liquidity stress scenario. The timeline for phasing into 100% requirement of HQLA is minimum LCR requirement of 60% in 2015, 70% in 2016, 80% in 2017, 90% in 2018, and lastly 100% LCR requirement in 2019.

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