ABSTRACT
While the last 20 years have witnessed a remarkable trend towards harmonization of banks’ solvency regulations across countries, there is still considerable variation concerning liquidity requirements. Some of the existing requirements are based on stock measures (typically a minimum level of liquid assets in relation to the stock of liquid liabilities), while others are based on mismatch analysis (i.e. limiting the gaps between expected inflows and outflows of cash for short-term maturities). Several countries (including Australia, Germany, Singapore and the Netherlands) have recently reformed their systems by introducing new quantitative rules for banks’ liquidity regulation.2 Other countries, like the United Kingdom, are considering the implementation of such reforms. There are essentially three main reasons for this, which we now briefly discuss.
