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Basel III, Liquidity Risk and Regulatory Arbitrage

In: Liquidity Risk, Efficiency and New Bank Business Models

Author

Listed:
  • Viktor Elliot

    (University of Gothenburg)

  • Ted Lindblom

    (University of Gothenburg)

Abstract

This chapter discusses and analyses the incentives for banks to behave opportunistically in order to bypass liquidity constraints and even benefit from regulatory arbitrage. The chapter specifically focuses on the new liquidity constraints introduced by Basel III and provides a number of examples from both on- and off-balance sheet perspectives of how banks are transferring risk to other parts of the economy that might be less well equipped to handle these risks. The chapter concludes by discussing the potential implications of such behaviours for the role banks will play in a liquidity-constrained economy.

Suggested Citation

  • Viktor Elliot & Ted Lindblom, 2016. "Basel III, Liquidity Risk and Regulatory Arbitrage," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Santiago Carbó Valverde & Pedro Jesús Cuadros Solas & Francisco Rodríguez Fernández (ed.), Liquidity Risk, Efficiency and New Bank Business Models, chapter 3, pages 35-55, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-3-319-30819-7_3
    DOI: 10.1007/978-3-319-30819-7_3
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    Cited by:

    1. Böhnke, Victoria & Ongena, Steven & Paraschiv, Florentina & Reite, Endre J., 2024. "Back to the roots of internal credit risk models: Does risk explain why banks' risk-weighted asset levels converge over time?," Discussion Papers 02/2024, Deutsche Bundesbank.

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