The Pre Basel IIi Requirement For Major Banks

The banking industry has over the years evolved from simple to large and complex organization. They have grown from one street building into having multiple branches some of which are international. Their clients range from individual and institutions to governments and other banks. Banks do not manufacture physical things. Their work is simply services for money (Koch & MacDonald 2010). Such services include storing, lending and managing money. All people and institutions, as well as governments, need money to operate accordingly.

* We want to avoid sacrificing our liquidity ratios in order to finance this repurchase.

A good regulation should be able to be flexible. For instance, when the economy is safe and flourishing, the regulation should be more relaxed and have decreased barriers for banks in terms of the minimum requirement for capital reserves. And when the economy is floundering, a stricter approach should be used. For example, the minimum requirements for requirement for capital reserves should be increased.

Liquidity ratios measure the business ability to pay all its short-term debts, it can be divided into current ratio and the acid test ratios. Current ratio examines the liquidity position of a firm, an ideal current ratio would be 1.5 : 1. The Acid Test Ratio provides us a tighter measure of a firm’s liquidity, by comparing current assets and liabilities after omitting stock from the total current assets. The ideal result for this ratio should be 1:1. These two ratios focus on the business financial stability on the short term only.

The rules require banks with assets of over $50 billion to hold up to 3% of their proceeds in cash or highly liquid securities in order to avoid bank failure in the case of another crash.

Basel III is a global comprehensive collection of restructured regulatory standards on bank capital adequacy and liquidity. It was developed by the Basel Committee on Banking Supervision to strengthen the regulation, supervision and risk management of the banking sector (bis.org, 2010). It introduces new regulatory requirements on bank liquidity and bank leverage in response to the financial downturn caused by the Global Financial Crisis. Stefan Walter, Secretary General of the Basel Committee on banking supervision said in November 2010:

Appendix 6.1 shows that Boral’s Current ratio decreased from 1.56 to 1.42 and Quick ratio decreased from 0.98 to 0.97. This figure shows that Boral Limited is not in an ideal situation to pay urgent liabilities and has little room to spare. The higher this number the better meaning that there are more available funds than current liabilities to pay them, in the event is required.

As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, banks with total consolidated assets of more than $10 billion is required to conduct annual stress tests and the Board of Governors of the Federal Reserve System published its final stress test rule (12 CFR 252) which provided definitions and rules concerning scope, scenarios, reporting and disclosure. This rule continues to be a focus by the regulators to ensure banks are in

Basel III is another law implemented that will place additional strain on Banks. Basel III is a set of reform measures, developed by the Basel Committee on Banking Supervision. It is a framework used to strengthen risk management and a banks ability to absorb shocks from financial and economic stress. Basel III implemented new tier 1 capital requirements, new minimum leverage ratio requirements and new liquidity coverage ratios requirements. Community banks enjoyed a small victory by delaying the final implementation requirements for Basel III to March 31, 2019.

The funds availability rules of Regulation CC apply only to deposits into transaction accounts, which usually refer to Share Draft (Checking) Accounts. As defined under Regulation D, transaction accounts include demand deposit accounts, negotiable order of withdrawal (NOW) accounts, payable-through accounts, and any account that allows more than six transfers to third parties.

Reserve requirements have been used for a long time as a monetary policy tool in order to control money supply. In the recent years this policy tool has been also proven to be a powerful tool of macroprudential policy. Opportunity costs associated with maintaining required reserves affect the decisions of banks about their borrowing and lending activities. Therefore central banks, changing reserve requirement ratio can influence the lending behavior of commercial banks and therefore the loan supply of banks.

The liquidity position of a company can be evaluated using several ratios which evaluate short-term assets and liabilities and a firm’s ability to settle short-term debts (Gibson, 2011). These ratios can provide insight into a firm’s ability to repay its debts in the short term (Gibson, 2011). In turn they suggest a firm’s capacity for debt-satisfying capabilities into the future (Gibson, 2011). This paper will use financial statement data as cited in Gibson (2011) from 3M Company (3M) to better understand liquidity measures to evaluate a firm’s total liquidity position. The following paper will focus on various liquidity calculations, their meaning, and their interpretation relative to 3M. Finally, an overall view of 3M’s liquidity

The liquidity ratios are a result of dividing cash and other liquid assets by the short term borrowings and current liabilities. They show the number of times the short term debt obligations are covered by the cash and liquid assets. If the value is greater than one it means that the short term obligations are fully covered.

By and large, the higher the liquidity proportions are, the higher the edge of security that the organization has to meet its present liabilities. Liquidity proportions more noteworthy than 1 show that the organization is in great money related wellbeing and it is more improbable fall into budgetary challenges.

The company should increase its Liquid assets because Current ratio of the firm it can pay off its short term debts. Acid Test ratio shows that the firm is facing problem to pay it immediate liabilities.