The good and bad news about the new liquidity rules of Basel III in Western European countries

Dietrich, Andreas; Heß, Kurt; Wanzenried, Gabrielle

doi:10.1016/j.jbankfin.2014.03.041

Cited by 91 publications

(84 citation statements)

References 36 publications

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“…Ashraf et al (2015) also found a positive and statistically significant relationship between the NSFR and financial stability of banks. However, Dietrich, Hess, and Wanzenried (2014) suggests that short-term investments and reduced maturity should reduce profitability as the longer-term investment and the mismatch of maturity are positively related to the banks' profitability. This might be the case with Kenyan commercial banks where they largely rely on short-term investments and reduced maturity assets which affect profitability negatively.…”

Section: Discussionmentioning

confidence: 99%

Liquidity Risk and Financial Performance of Commercial Banks in Kenya

Muriithi¹,

Waweru²

2017

IJEF

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The focus of this study was to examine the effect of liquidity risk on financial performance of commercial banks in Kenya. The period of interest was between year 2005 and 2014 for all the 43 registered commercial banks in Kenya. Liquidity risk was measured by liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) while financial performance by return on equity (ROE). Data was collected from commercial banks' financial statements filed with the Central Bank of Kenya. Panel data techniques of random effects estimation and generalized method of moments (GMM) were used to purge time-invariant unobserved firm specific effects and to mitigate potential endogeneity problems. Pairwise correlations between the variables were carried out. Wald and F-tests were used to determine the significance of the regression while the coefficient of determination, within and between, was used to determine how much variation in dependent variable is explained by independent variables. Findings indicate that NSFR is negatively associated with bank profitability both in long run and short run while LCR does not significantly influence the financial performance of commercial banks in Kenya both in long run and short run. However, the overall effect was that liquidity risk has a negative effect on financial performance. It is therefore advisable for a bank's management to pay the required attention to the liquidity management.

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Section: Discussionmentioning

confidence: 99%

Liquidity Risk and Financial Performance of Commercial Banks in Kenya

Muriithi¹,

Waweru²

2017

IJEF

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“…Taking into account the above considerations, our vector contains (a) the cost‐to‐income ratio, (b) the unweighted leverage ratio (equity‐to‐total assets ratio (Adrian & Shin, 2010; Kishan & Opiela, 2000); (c) a dummy for banks with regulatory liquidity constraints (i.e., those with a net stable funding ratio [NSFR] of less than 95% in the period 2011–2015); and (d) a dummy for banks that were recapitalised by the authorities during the crisis (Brei, Gambacorta, & von Peter, 2013). The NSFR ratio has been reconstructed historically using the methodology described in Dietrich, Hess, and Wanzenried (2014). As the NSFR ratio was included in the Basel III agreement in December 2010, we identified banks with regulatory liquidity constraints only over the period 2011–2015.…”

Section: Empirical Analysismentioning

confidence: 99%

Bank intermediation activity in a low‐interest‐rate environment

2020

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This paper investigates how a prolonged period of lowinterest rates affects bank intermediation activity. We use data for 113 large international banks headquartered in 14 major advanced economies during the period 1994-2015. We find that low-interest rates induce banks to shift their activities from interest-generating to feerelated and trading activities. This rebalancing is stronger for low capitalised banks. Banks also moderately adjust their funding structure, away from short-term market funding towards deposits. We observe a concomitant decline in the risk-weighted asset ratio and a reduction in loan-loss provisions, which is consistent with signs of evergreening.

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“…Khan, Scheule, and Wu (11/2015) show that bank size and capital buffers may also affect the relation between liquidity risk taking and cost of funds. Dietrich, Hess, and Wanzenried (2014) found that banks with lower NSFR benefit from lower funding costs as a result of using less costly short-term funding. Kapinos and Mitnik (2015) provide an overview of the stress testing practice in banks and review several critiques.…”

Section: Complying With the Regulatory Requirementsmentioning

confidence: 99%

Stress Testing of Liquidity Maturity Transformation Risk in Banks

Schmitt¹

2018

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One of the main causes of the past crisis was the inability of financial institutions to acquire funding at appropriate costs. The importance of applying a good liquidity risk measurement system becomes apparent. The present paper provides an approach to the measurement of liquidity maturity transformation risk within a stress testing framework, for middle-sized banks. The costs of liquidity arising due to a downturn in refinancing conditions are calculated by using modern risk measures. The forward-looking way is based on a liquidity gap report, where the consideration of the counterbalancing capacity enables to gain an insight into the real liquidity needs. The measurement of both, the portfolio-value in the respective time bucket and liquidity costs, is possible. Applying the expected shortfall can easily be included into the calculation. The results show that by using historical simulation, if no sufficient data are available, expected shortfall delivers an approximate value. Still, it can serve as an indicator of insurance against extreme events. The present approach combines a scenario-based view to a possible distress with a quantitative risk measurement. Therewith, it contributes to the bank's wide stress testing as required by the regulatory authorities.

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The good and bad news about the new liquidity rules of Basel III in Western European countries

Cited by 91 publications

References 36 publications

Liquidity Risk and Financial Performance of Commercial Banks in Kenya

Liquidity Risk and Financial Performance of Commercial Banks in Kenya

Bank intermediation activity in a low‐interest‐rate environment

Stress Testing of Liquidity Maturity Transformation Risk in Banks

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