Capital Allocation for Liquidity Risk under Pillar II

[s.alkhatib]

Hello,

Can the LCR and NSFR be used to calculate capital requirement for liquidity risk?

 

[ShaktiRathore]

yes they are required LCR to meet short term liquidity needs and NSFR for meeting longer term liquidity risk they are covered most extensively under Basel III. Besides covering capital requirement basel III also lays down additional requirement of meeting liquidity risk through meting a minimum standard of these ratios over time. Credit risk and market risk is already covered under capital requirement. This is one requirement laid down under Basel to cover liquidity risk.
visit the link http://forum.bionicturtle.com/threa...quidity-coverage-ratio-lcr-in-basel-iii.4521/

thanks

 

[s.alkhatib]

If the LCR is less than 100% how can I calculate the additional required capital to cover this liquidity risk?

 

[ShaktiRathore]

Hi according to my knowledge(otherwise David knows better)
There is separate revision for covering LCR under basel III. After credit crisis of 2008 the Basel has lad provision to face this liquidity risk via LCR and NSFR through a capital of high quality liquid assets as cash,central banks reserves etc. There is no capital charge that is separately calculated for facing the liquidity risk. The operational risk , market risk and credit risk each have separate capital charge calculated and liquidity risk is supported with the high quality assets. So there is a trend among banks to move capital towards tier 1 assets of high quality.

thanks