Trends in the Polish Banking System's Liquidity Risk Measured by Basel III Standards

Abstract

Basel III liquidity proposals are still "work in progress" as new versions of regulations appear, but general shape of two major new liquidity ratios (short term LCR – liquidity coverage ratio and medium-term NSFR – net stable funding ratio) seems to be established. In the paper LCR and NSFR measurement in time is proposed to assess changes in systemic liquidity risk in Poland.

Estimations of two Basel ratios for years 1996-2012, based on the data on aggregate banking system from National Bank of Poland, reveal that both ratios gradually deteriorated throughout most of this period. The ratios stabilized in 2008 – probably a combined result of banks' reaction to financial crisis abroad and new regulations.

It seems that on average Polish banks can meet Basel's liquidity requirement. However, reverse stress test for LCR uncovers that currently an average Polish bank would withstand a run-off of no more than 20% retail deposits – while fifteen years earlier similar stress test would show that banks were able to endure even 60% run-off rate. Also, "net cash capital" surplus present in the system at the beginning of the analysed period has practically disappeared, even if favourable Basel weights for mortgage loans are taken into account.

Keywords: banking, Poland, liquidity risk, Basel III, systemic risk

JEL Classification: E51, G21, G28, G32