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Basel III LCR Requirement and Banks’ Deposit Funding: Empirical Evidence from Emerging Markets

Author

Listed:
  • Tafirei Mashamba

    (Great Zimbabwe University, Department of Banking & Finance, Masvingo, Zimbabwe and University of South Africa, College of Economic and Management Sciences, Pretoria, South Africa)

  • Rabson Magweva

    (Great Zimbabwe University, Department of Banking & Finance, Masvingo, Zimbabwe)

Abstract

In December 2010, the Basel Committee on Baking Supervision introduced the liquidity coverage ratio (LCR) standard for banking institutions in response to disturbances that rocked banks during the 2007/08 global financial crisis. The rule is aimed at enhancing banks’ resilience to short term liquidity shocks as it requires banks to hold ample stock of high grade securities. This study attempts to evaluate the impact of the LCR specification on the funding structures of banks in emerging markets by answering the question “Did Basel III LCR requirement induced banks in emerging market economies to increase deposit funding more than they would otherwise do?” The study found that the LCR charge has been effective in persuading banks in emerging markets to garner more stable retail deposits. This response may engender banking sector stability if competition for retail deposits is properly regulated.

Suggested Citation

  • Tafirei Mashamba & Rabson Magweva, 2019. "Basel III LCR Requirement and Banks’ Deposit Funding: Empirical Evidence from Emerging Markets," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 8(2), pages 101-128.
    • Handle: RePEc:cbk:journl:v:8:y:2019:i:2:p:101-128
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    File URL: http://www.cbcg.me/repec/cbk/journl/vol8no2-6.pdf
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    Citations

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    Cited by:

    1. Faisal Abbas & Zahid Irshad Younas, 2021. "How Do Bank Capital and Capital Buffer Affect Risk: Empirical Evidence from Large US Commercial Banks," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(2), pages 109-131.
    2. Amina Malik & Haroon Aziz & Buerhan Saiti & Shahab Ud Din, 2021. "The Impact of Earnings variability and Regulatory Measures on Income Smoothing: Evidence from Panel Regression," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(1), pages 183-201.
    3. Marta Penczar & Sabina Nowak & Monika Liszewska, 2023. "Playing by the rules: Do the post‐crisis regulations influence banks' funding model in the EU?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 4572-4591, October.

    More about this item

    Keywords

    Basel III; LCR; commercial banks; emerging market economies.;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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