What impact will the introduction of Basel III have on the liquidity of banks?
The financial crisis of recent months came about not because of the credit crisis but because credit institutions had extreme difficulty in refinancing in the market - prudential supervision at the European level had taken no account of the liquidity criteria.
In response to the difficulties encountered by banking institutions when refinancing on the markets from 2008 onwards, the Basel Committee proposed the introduction of a short-term (Liquidity Coverage Ratio) and long term (Net Stable Funding Ratio) liquidity ratio. These ratios are proposed in order to measure the resilience of banks in the event of massive withdrawals. One of the direct consequences of implementing these ratios is the exhaustive analysis of institutions’ asset portfolios in order to optimise these regulatory liquidity ratios, which will entail a review of European credit institution strategies.
After reviewing the current regulation of liquidity in Europe, Mazars presents the Basel Committee liquidity measures and their transposition into European law as published in July 2011.
At the same time, Mazars wished to analyse the financial reporting of a varied sample of European banks on the subject of liquidity since the end 2010 in order to identify the preferred approaches and to assess the c anges which are already emerging in response to a matter which is of concern to investors.
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