Basel III Liquidity Options


In this ACFS Discussion Paper, Professor Kevin Davis examines the new Basel Liquidity Requirements announced at the end of 2010, focusing primarily on the liquidity coverage ratio (LCR) requirement. The underlying philosophy of the approach can be questioned, partly because it aims to deal with both systemic stress and individual bank stress using the one policy instrument. The Australian solution to the shortage of high quality liquid assets (HQLA), involving a fee based liquidity facility at the Reserve Bank, also raises a number of tricky questions about determination of an appropriate fee and may require a review of system wide liquidity management arrangements.While some details remain to be determined, and the implementation date is relatively long distant, the impact on Australian banks and the financial market is likely to be substantial.

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This paper was prepared by Professor Kevin Davis, Research Director of the Australian Centre for Financial Studies.

The ACFS Financial Regulation Discussion Paper series provides independent analysis and commentary on current issues in financial regulation with the objective of promoting constructive dialogue among academics, industry practitioners, policymakers and regulators and contributing to excellence in Australian financial system regulation.

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