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  • Author: Karel Lannoo, Jean-Pierre Casey
  • Publication Date: 10-2005
  • Content Type: Policy Brief
  • Institution: Centre for European Policy Studies
  • Abstract: The debate on banking supervision over the last decade has largely focused on capital requirements and solvency of financial institutions. The interaction between solvency and liquidity has been much less debated. Traditionally, it was assumed that once solvency was under control, liquidity should pose no problem. Banks with sufficient capital should be able to obtain extra liquidity from the central bank against adequate collateral if needed. Furthermore, the aim of the New Basel Accord to create a better alignment of regulatory capital with the risk to which banks are exposed, and the stronger focus on diversification, should eventually reduce mismatches between solvency and effective liquidity.
  • Topic: Development, Economics, Emerging Markets
  • Political Geography: Europe