Preparing for Basel IV (Whilst Commending Basel III): Why Liquidity Risks Still Present a Challenge to Regulators in Prudential Supervision ( Part II)*

Abstract:     
Whilst the predecessor (Part I) to this paper addresses criticisms and challenges which have arisen in response to recent Basel Committee's initiatives aimed at addressing capital and liquidity standards, the present paper highlights further measures which are being introduced by the Basel Committee to address such criticisms and challenges.

As well as presenting and drawing attention to proposals which could serve as means of addressing challenges presented by liquidity risks, Part I of the paper concludes with the result that market based regulation is an essential and vital tool in the Basel Committee's efforts to address some of the challenges presented by liquidity risks. The present paper highlights the Basel Committee's acknowledgement of this conclusion. Furthermore, it draws attention to other areas which are considered to constitute fertile substrates for purposes of future research.

This paper will also illustrate why the potential of banking regulations and disclosure requirements to impact risk taking levels is not only dependent on certain factors such as the dissemination of information to appropriate recipients, appropriate volume of disseminated information, when to disseminate such information, but also on other factors such as ownership structures and effective corporate governance measures aimed fostering monitoring, supervision and accountability.

*(Paper presented at the INFINITI Conference on International Finance, Trinity College Dublin, 13-14 June 2011)

Number of Pages in PDF File: 14

Keywords: liquidity risks, systemic risks, capital, standards, Basel III, moral hazard, disclosure, credit ratings, information, Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR)

working papers series