Liquidity regulation and its consequences

The Basel Committee on Banking Supervision has announced the first substantive internationally agreed minimum requirements for bank liquidity, as part of Basel III. The requirements represent a big change in regulation and have very large implications, not all of which have been recognised. And they have some serious drawbacks that can and should be put right.

The Committee's objectives are twofold. First, to increase the amount of liquid assets held by banks and reduce their reliance on short-t