Liquidity matters

Victoria Pennington

Most in the financial community seem resolved to refer to the amendments of the Basel II Accord as Basel III, but one reader commented to me that it probably would be more appropriate to call it Basel one-and-a-half, as it is much less risk-sensitive than Basel II. While in a sense Basel III is a step backwards for risk-based capital adequacy rules, it does mark the birth of risk-based liquidity adequacy rules. However, whether liquidity can be successfully regulated for remains to be seen. I