THE BASEL III REGULATORY FRAMEWORK AND ITS IMPLICATION ON THE LIQUIDITY OF THE BANKING SECTOR IN THE REPUBLIC OF NORTH MACEDONIA

Abstract

The advent of the global financial crisis and its consequences have led the banking system to work towards more stringent regulatory rules. Additional regulatory requirements affect various aspects of banks' operations. In this regard, one of the most important questions that arises is how the implementation of the new Basel III regulatory framework affects the liquidity of banking institutions.The focus in this paper is the liquidity of the banks in the Republic of Northern Macedonia. The subject of the study is focused on the strength and direction of the impact of the new Basel III regulatory framework on their liquidity. The aim of the study is to reveal the effect of the use of modern regulatory requirements on liquidity of the banking system. A coefficient analysis is applied using a system of appropriately selected indicators: change (increment or decrease) of liquid and highly liquid assets, relative share of liquid and highly liquid assets in the structure of assets, coverage of liabilities with liquid assets, coverage of short-term liabilities with liquid assets, coverage of deposits by non-financial entities with liquid assets, “loans / deposits” ratio.The study includes observations on developments in the banking sector of the Republic of Northern Macedonia for the period 2007-2018. In terms of the impact of the new regulatory framework on banking liquidity, the twelve-year period analysed includes three distinct phases: 1) the time before the onset of the global financial crisis (until 2009); 2) the crisis period (2009 to 2012); 3) the post-crisis period (after 2012), during which the new regulatory measures are gradually moving (Basel III). For the purposes of the study, two working hypotheses are formulated: 1) first hypothesis - the new rules for regulating liquidity and capital adequacy have a negative or stagnant effect on the liquidity of banks in the Republic of Northern Macedonia, manifested in the form of sensitive fluctuations or in the form of sensitive fluctuations or a number of their financial liquidity indicators; 2) second hypothesis - the implementation of the new regulatory measures does not adversely affect banks' liquidity. The analysis of real empirical data shows that the implementation of the new regulatory measures does not have a negative impact on the liquidity of banks in the Republic of Northern Macedonia, but rather, a tendency to stabilize and improve a number of their key liquidity indicators.