The Liquidity Risk Management Guide: From Policy to Pitfalls

12 Basel III: The New Global Framework

The banking sector should by now be used to receiving orders from the centralized regulatory unit in Basel, Switzerland. For a credit risk specialist this is nothing new, as the Basel frameworks have for a long time been the cornerstone of credit and capital risk calculations and requirements. For some reason liquidity risk has not had many supporters in Basel and until Basel III came out the contribution has been limited, with the frequently mentioned ‘Sound Principles’ paper being the most significant exception. However, this has now changed and going forward one can expect Basel to shape liquidity management in the same way it has done with other risk factors. Basel III is therefore only the beginning.

12.1 BASEL III – BEYOND THE BUZZWORDS

Banks have been trying to get to grips with the impact of orders from Basel and Basel III is no exception. Its content around liquidity risk measurement might by now not be that alien to risk managers and they should know in broad terms what they are up against. Its overall impact on liquidity risk monitoring and the reporting framework is less clear, as well as how the new regulatory framework will filter into each jurisdiction and shape global best practice. Without going into much history, the following is useful to know.

12.1.1 The Basel Committee on Banking Supervision (BCBS)

The Basel Committee on Banking Supervision (BCBS) or the Basel Committee develops and sets the international minimum ...