The Information Value of Basel III Liquidity Risk Measures

39 Pages Posted: 19 Nov 2012 Last revised: 25 Oct 2013

See all articles by Deming Wu

Deming Wu

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Han Hong

Stanford University

Date Written: November 19, 2012

Abstract

We calculate the approximate measures of the liquidity coverage ratio and the net stable funding ratio of the Basel III liquidity risk framework using the call report data of U.S. banks. We find that the new measures have little predicting power of bank failures when compared with traditional liquidity risk measures. We also find that marketwide liquidity risk was the major predictor of bank failures in 2009 and 2010. Finally, our study sheds light on the assumptions on net cash outflow rates in the Basel III liquidity risk standards.

Keywords: Basel III, Liquidity risk, Bank failure, Insolvency risk, Information value

JEL Classification: G21, G28, G01, C53

Suggested Citation

Wu, Deming and Hong, Han, The Information Value of Basel III Liquidity Risk Measures (November 19, 2012). Available at SSRN: https://ssrn.com/abstract=2177614 or http://dx.doi.org/10.2139/ssrn.2177614

Deming Wu (Contact Author)

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

Han Hong

Stanford University ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

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