Three years after the endorsement of Basel III, and past the date when the rules were meant to start being implemented (January 1, 2013), the liquidity coverage ratio (LCR) and the net stable funding ratio (NFSR) under Basel III still induce headaches for bankers. They are expected to reduce return on equity as financial institutions will have to keep a chunk of their liquidity aside for crisis situations in which wholesale funding markets shut down.
The LCR and NSFR ratios determine how the bank will cope if cut off from funding temporarily and how well the maturity profiles of assets and liabilities match. But the current definition of the rules creates scope for different interpretations among local regulators, resulting in inconsistency that has disrupted and slowed down the overall commencement of the adoption of Basel III.
