Table of Contents
ISRN Applied Mathematics
Volume 2013, Article ID 582707, 20 pages
http://dx.doi.org/10.1155/2013/582707
Research Article

Basel III and the Net Stable Funding Ratio

1Department of Mathematics, Faculty of Science, University of Namibia, Private Bag 13301, Windhoek 9000, Namibia
2Research Division, Faculty of Commerce and Administration, North-West University, Private Bag x2046, Mmabatho 2735, South Africa
3Economics Division, Faculty of Commerce and Administration, North-West University, Private Bag x2046, Mmabatho 2735, South Africa

Received 28 September 2012; Accepted 15 November 2012

Academic Editors: S.-W. Chyuan, Y. Wang, and Y.-G. Zhao

Copyright © 2013 F. Gideon et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

We validate the new Basel liquidity standards as encapsulated by the net stable funding ratio in a quantitative manner. In this regard, we consider the dynamics of inverse net stable funding ratio as a measure to quantify the bank’s prospects for a stable funding over a period of a year. In essence, this justifies how Basel III liquidity standards can be effectively implemented in mitigating liquidity problems. We also discuss various classes of available stable funding and required stable funding. Furthermore, we discuss an optimal control problem for a continuous-time inverse net stable funding ratio. In particular, we make optimal choices for the inverse net stable funding targets in order to formulate its cost. This is normally done by obtaining analytic solution of the value function. Finally, we provide a numerical example for the dynamics of the inverse net stable funding ratio to identify trends in which banks behavior convey forward looking information on long-term market liquidity developments.