Financial regulation through new liquidity standards and implications for institutional banks

Inhaltsverzeichnis (Table of Contents)

• Introduction
• Objectives
• Methodology
• Financial regulations
• History of the Basel Committee and financial reforms
• Development of Basel III
• Main contents of Basel III
• The liquidity standard
• General remarks on the new liquidity standards
• Liquidity Coverage Ratio
• LCR objective and formula
• Meaning of: Stock of high quality liquid assets
• Total net cash outflows
• Assumptions of the stress scenario
• LCR by currency
• Net Stable Funding Ratio
• NSFR objective and formula
• Available amount of stable funding
• Required amount of stable funding
• Monitoring tools
• Transitional arrangements and jurisdiction
• First results by measuring the proposed changes
• Results from different institutions
• Results from the IMF
• Results from the IIF
• Content of the IIF report
• Special LCR assumption and the calculation results
• Special NSFR assumption and the calculation results
• Results from the BIS
• Content of the QIS
• QIS results for the LCR impact
• QIS results for the NSFR impact
• Banks business strategy adjustment as impact of the new LCR
• LCR distorting bond markets
• Assumed refinancing demand of liquid assets cost profitability
• The benefit of ECB collateral
• Implications for covered bond issuers and investors
• Banks business strategy adjustment as impact of the new NSFR
• Banks need to increase stable funding
• Stable funding alternatives
• Deposit gathering
• Covered bonds as secured funding gets an important status
• Securitization disruption
• Unsecured wholesale funding
• Regulatory extensions as impact of the new liquidity requirements
• The same regulation standard for all financial institutions
• Existing German regulation in comparison with new rules
• Discussion and improvements for the new liquidity standard
• Supply of liquid assets and demand for stable funding
• Important senior unsecured funding for banks and their effects
• Sufficient acceptance of covered bonds
• Covered bonds versus government bonds
• Distinction within the covered bond sector
• Higher consideration of certain ABS

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This master thesis explores the impact of new liquidity standards, specifically the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR), on institutional banks. The study aims to analyze how these regulations affect banks' business strategies, funding structures, and overall profitability.

• The impact of Basel III liquidity standards on institutional banks
• Analysis of the LCR and NSFR, including their objectives, formulas, and implications
• Assessment of the potential for market distortions and changes in bank funding strategies
• Evaluation of the role of covered bonds and other stable funding sources
• Discussion of regulatory extensions and potential improvements to the new liquidity standards

Zusammenfassung der Kapitel (Chapter Summaries)

• Introduction: This chapter outlines the research objectives and methodology. It defines the key concepts and establishes the context for the study.
• Financial regulations: This chapter provides a historical overview of the Basel Committee and financial reforms, focusing on the development and key components of Basel III. It introduces the LCR and NSFR as crucial components of the new regulatory framework.
• The liquidity standard: This chapter delves into the details of the new liquidity standards, including the LCR and NSFR. It explains the objectives, formulas, and calculation methods, highlighting the significance of high-quality liquid assets and stable funding sources.
• First results by measuring the proposed changes: This chapter examines initial results from various institutions, including the IMF, IIF, and BIS, as they attempt to measure the impact of the proposed liquidity standards on banks. It analyzes the findings from different quantitative impact studies.
• Banks business strategy adjustment as impact of the new LCR: This chapter explores the potential effects of the LCR on bank business strategies, focusing on the potential for market distortions, changes in the cost of funding, and implications for covered bond issuers and investors.
• Banks business strategy adjustment as impact of the new NSFR: This chapter examines the impact of the NSFR on banks' business strategies, emphasizing the need for increased stable funding and exploring various alternatives such as deposit gathering, covered bonds, securitization, and unsecured wholesale funding.
• Regulatory extensions as impact of the new liquidity requirements: This chapter analyzes the potential for extending the new liquidity requirements to all financial institutions and compares existing German regulations with the proposed rules.
• Discussion and improvements for the new liquidity standard: This chapter offers a critical discussion of the new liquidity standards, highlighting the challenges of ensuring a sufficient supply of liquid assets and the importance of senior unsecured funding for banks. It explores the potential benefits of covered bonds and the need for a higher consideration of certain asset-backed securities (ABS).

Schlüsselwörter (Keywords)

The core concepts of this thesis revolve around the impact of new liquidity standards on institutional banks. This includes key themes such as Basel III, liquidity coverage ratio (LCR), net stable funding ratio (NSFR), bank business strategy, funding structures, profitability, covered bonds, stable funding, market distortions, and regulatory extensions.