Basel III and Recourse to Eurosystem Monetary Policy Operations

49 Pages Posted: 28 Apr 2016

See all articles by Annalisa Bucalossi

Annalisa Bucalossi

Bank of Italy

Cristina Coutinho

Bank of Portugal

Kerstin Junius

European Central Bank (ECB)

Alaoishe Luskin

Central Bank of Ireland

Angeliki Momtsia

Bank of Greece

Imene Rahmouni-Rousseau

Banque de France

Benjamin Sahel

European Central Bank

Antonio Scalia

Bank of Italy

Stefan W. Schmitz

Oesterreichische Nationalbank (OeNB); Vienna Circle Society

Franziska Schobert

Deutsche Bundesbank

Rita Isabel Soares

Bank of Portugal

Michael Wedow

European Central Bank (ECB) - Directorate Financial Stability and Supervision

Date Written: April 26, 2016

Abstract

Following the emergence of the financial crisis in August 2007, the Basel Committee on Banking Supervision established in 2010 a new global regulatory framework. In addition to raising capital requirements, it introduced three ratios, two of which set out minimum standards for liquidity and funding risk, i.e. the liquidity coverage ratio and the net stable funding ratio, and one which aims to limit leverage in the banking system, i.e. the leverage ratio. All three ratios can have a number of implications for monetary policy implementation, in particular the liquidity coverage ratio and the net stable funding ratio owing to the special role of central banks in providing liquidity. This paper investigates the extent to which the regulatory initiatives might have already had an impact on banks’ behaviour in Eurosystem monetary policy operations. It also provides an overview of the regulatory state of play and major recent advancements in banks’ compliance with the three Basel III ratios. Based on aggregate data, the empirical evidence generally supports some of the theoretically predicted effects of the three ratios. However, no firm conclusions can be drawn as to whether the introduction of the three ratios could cause a significant change in banks’ recourse to Eurosystem monetary policy operations. This is partly due to the fact that, in aggregate, major developments, such as substantial fluctuations in the recourse to Eurosystem refinancing operations in the years between 2012 and 2015, have been driven by the financial crisis and the gradual recovery from it, as well as by the accommodative stance of monetary policy.

Keywords: Basel III, liquidity regulation, monetary policy implementation

JEL Classification: G28, E58

Suggested Citation

Bucalossi, Annalisa and Coutinho, Cristina and Junius, Kerstin and Luskin, Alaoishe and Momtsia, Angeliki and Rahmouni-Rousseau, Imene and Sahel, Benjamin and Scalia, Antonio and Schmitz, Stefan W. and Schobert, Franziska and Soares, Rita Isabel and Wedow, Michael, Basel III and Recourse to Eurosystem Monetary Policy Operations (April 26, 2016). ECB Occasional Paper No. 2016/171, Available at SSRN: https://ssrn.com/abstract=2770336 or http://dx.doi.org/10.2139/ssrn.2770336

Annalisa Bucalossi (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Cristina Coutinho

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

Kerstin Junius

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Alaoishe Luskin

Central Bank of Ireland ( email )

P.O. Box 559
Dame Street
Dublin, 2
Ireland

Angeliki Momtsia

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

Imene Rahmouni-Rousseau

Banque de France ( email )

Paris
France

Benjamin Sahel

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Antonio Scalia

Bank of Italy ( email )

Financial Risk Management
Via Nazionale 91
Rome, 00184
Italy
+39 06 4792 3390 (Phone)

Stefan W. Schmitz

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner Platz 3
POB 61
Vienna 1011
Austria

Vienna Circle Society ( email )

Spitalgasse 2-4, Court 1
Vienna, 1090
Austria

Franziska Schobert

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Rita Isabel Soares

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

Michael Wedow

European Central Bank (ECB) - Directorate Financial Stability and Supervision ( email )

Frankfurt a.M.
Germany

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