Financial and Monetary Theory- PDF

Running head: FINANCIAL AND MONETYARY THEORY
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FINANCIAL AND MONETYARY THEORY
Table of Contents
Introduction:..........................................................................................................................................2
Literature review:..................................................................................................................................2
What has been the impact of liquidity rules on the composition of overall bank funding?....................2
Merits of the liquidity rules for the banking sector:...............................................................................4
Conclusion:............................................................................................................................................5
References:............................................................................................................................................7

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FINANCIAL AND MONETYARY THEORY
Introduction:
The financial crisis of the year 2007 top 2009, also known as the Global financial crisis, is
one of the largest and worst economic and financial crises, which the world had witnessed, since the
Great Depression. It had its inception in the Mortgage market of the United States, which had led to a
robust and huge banking crisis with the collapse of the legendary investment banking company
Lehman Brothers, back in 2008. In these uncertain times, financial crisis is one of the last things,
desired by humans. In order to prevent depressions of such drastic nature, various steps had been
taken to consolidate the financial market. Basel III has also been initiated and brought into existence
for the purpose of consolidating the banking industry, across the world. It was specifically designed to
change the way, banks conduct their business. It helped in introducing new set of liquidity rules for
the banks, the impact of which upon the banking sector has been discussed in this report.
Literature review:
What has been the impact of liquidity rules on the composition of overall
bank funding?
The Basel Committee’s new liquidity rules are of paramount importance to the overall
banking and financial sector of the economies across the world. Accordingly the procedure has
attracted a great deal attention on the new rules. According to the reports of McKinsey (2016), the full
implementation of the new rules would take place by 2019. It would lead to significant amount of
deduction in the pre-tax Return on Investment of the European banks. It would result from the impact
of the new rules on the capital and funding of the banking companies. The funding impact has been
described below:
 A total shortfall in the short term funding of the banks would take place, as a result of the
introduction of the new liquidity coverage ratio (LCR), with the amount leading to a