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Basel liquidity compliance and capital market funding certainty 

June 15, 2015

Moorad Choudhry

The maintenance of stable, robust funding has been an imperative of all banks since banks were first created. But like all objectives that are more art than science, devising an effective metric that gives an accurate picture of the funding position of a bank has proved somewhat problematic. This is unsurprising, as funding status can be measured in a number of ways and the bank’s executive will require a forward picture as well as a stressed versus BAU picture. And then there is the issue of business model: a single-branch UK building society will require different metrics to a secured-funded investment bank, for example.

In the Basel III regime though of course one size fits all. Compliance with liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) is required of all banks, irrespective of their business model. But to what extent does a particular value for either metric inform us of the stable funding position of a bank? Put another way, how useful are LCR and NSFR for actual balance sheet management purposes?

Read more: Treasury Insider

 
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