Hal S. Scott
- Published in print:
- 2016
- Published Online:
- January 2017
- ISBN:
- 9780262034371
- eISBN:
- 9780262332156
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262034371.003.0015
- Subject:
- Economics and Finance, Economic History
This chapter discusses Basel's revised liquidity requirements. The Basel Committee adopted a new liquidity standard for phase-in at the start of 2015, to be completed by 2019. Basel's liquidity ...
More
This chapter discusses Basel's revised liquidity requirements. The Basel Committee adopted a new liquidity standard for phase-in at the start of 2015, to be completed by 2019. Basel's liquidity metric, known as the liquidity coverage ratio (LCR), requires banks to hold unencumbered high-quality assets sufficient to meet all outstanding 30-day-or-fewer liabilities. Basel has also proposed a longer term metric called the net stable funding ratio (NSFR) designed to secure institutions with enough liquidity support for one year, to be implemented by January 2018. The components of “stable funding” are capital, preferred stock, other liabilities with maturities of more than one year, plus “stable” deposits. Beyond LCR and NSFR, the Basel III proposal introduces other measurements oriented at facilitating supervisory monitoring of institution liquidity. Their focus is on maturity mismatching, wholesale funding dependency, and amount of available unencumbered assets. The remainder of the chapter deals with US implementation of Basel liquidity requirements.Less
This chapter discusses Basel's revised liquidity requirements. The Basel Committee adopted a new liquidity standard for phase-in at the start of 2015, to be completed by 2019. Basel's liquidity metric, known as the liquidity coverage ratio (LCR), requires banks to hold unencumbered high-quality assets sufficient to meet all outstanding 30-day-or-fewer liabilities. Basel has also proposed a longer term metric called the net stable funding ratio (NSFR) designed to secure institutions with enough liquidity support for one year, to be implemented by January 2018. The components of “stable funding” are capital, preferred stock, other liabilities with maturities of more than one year, plus “stable” deposits. Beyond LCR and NSFR, the Basel III proposal introduces other measurements oriented at facilitating supervisory monitoring of institution liquidity. Their focus is on maturity mismatching, wholesale funding dependency, and amount of available unencumbered assets. The remainder of the chapter deals with US implementation of Basel liquidity requirements.
Hal S. Scott
- Published in print:
- 2016
- Published Online:
- January 2017
- ISBN:
- 9780262034371
- eISBN:
- 9780262332156
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262034371.003.0019
- Subject:
- Economics and Finance, Economic History
Prime money market mutual funds (MMF) are particularly susceptible to runs given the inherently short-term nature of their liabilities and the riskiness of their assets as compared with government ...
More
Prime money market mutual funds (MMF) are particularly susceptible to runs given the inherently short-term nature of their liabilities and the riskiness of their assets as compared with government funds. Thus, it is a proper object of policy to minimize the possibility of prime money market fund runs. This chapter discusses the SEC's approach to MMF reform. The approach incorporates three elements: (1) enhanced liquidity requirements; (2) a floating net asset value (NAV) requirement for certain classes of money market funds; and (3) the possibility of imposing liquidity fees and redemption gates on money market funds, which would limit rapid MMF creditor outflows in times of stress. It specifically rejected imposing a capital requirement on these funds. At the outset it should be clear that the concern with contagion should only be with prime money market funds and municipal funds, and not with government funds, which are all but immune from runs.Less
Prime money market mutual funds (MMF) are particularly susceptible to runs given the inherently short-term nature of their liabilities and the riskiness of their assets as compared with government funds. Thus, it is a proper object of policy to minimize the possibility of prime money market fund runs. This chapter discusses the SEC's approach to MMF reform. The approach incorporates three elements: (1) enhanced liquidity requirements; (2) a floating net asset value (NAV) requirement for certain classes of money market funds; and (3) the possibility of imposing liquidity fees and redemption gates on money market funds, which would limit rapid MMF creditor outflows in times of stress. It specifically rejected imposing a capital requirement on these funds. At the outset it should be clear that the concern with contagion should only be with prime money market funds and municipal funds, and not with government funds, which are all but immune from runs.
