Criticism of Basel III liquidity ratios continues

The liquidity coverage ratio and net stable funding ratio in Basel III have been highlighted as among the most challenging aspects of the new capital and liquidity framework. Supervisors have promised to make alterations if necessary during the calibration process – but where is change most needed? By Michael Watt

The inclusion of new liquidity ratios within Basel III has been the cause of some of the fiercest criticism of the new capital and liquidity framework, ever since the first draft was published in December 2009. A couple of tweaks to the proposals over the past year or so have failed to calm feeling – to the extent that at least one regulator has called on European law-makers to write their own version of the rules. Other market participants have argued that the liquidity ratios should be