CERTAIN ASPECTS OF THE CAPITAL AND LIQUIDITY OF BANKS IN BOSNIA AND HERZEGOVINA

Radomir Salic

Abstract


The latest standards in banking, as proposed by way of the regulations of the Third Basel Accord, aim to support banks in their tendency to absorb the shock waves produced by financial and economic stresses, no matter what their point of origin is. This document’s standards require banks to increase their capital, improve its structure, and thus improve the liquidity risk coverage. Regulators all over the world the world tend to impose and accelerate the implementation of these common regulations. However, many countries have not even started the process. This group of countries includes the banking system of Bosnia and Herzegovina, which has done very little to implement the process, as seen from the level of its banks’ capital and the model of establishing liquidity. The reason for such a state of affairs lies primarily with the regulators in Bosnia and Herzegovina, who have neither drawn up such regulations nor adopted them. An examination of the official data from commercial banks has shown that the banking system of Bosnia and Herzegovina can and should meet the suggested standards, despite the fact that the new model of establishing banks’ liquidity is broader and more encompassing than the present one devised by the Banking Agency, because it takes into consideration more balance positions, both within a bank’s assets and liabilities, but also includes all the significant off-balance positions of a bank, which have not been previously included. Our final conclusion is that the banks in Bosnia and Herzegovina should adopt and implement the standards of The Second Basel Accord, and then proceed towards the application of the more advanced standards contained in the Third Basel Accord. This means that the banks in Bosnia and Herzegovina should first increase their capital, which will enable them to increase the deposits, and the increased deposits will, in turn, enable the required level of liquidity.

Keywords


capital, liquidity coverage ratio, risk, Bosnia and Herzegovina

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References


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