Liquidity Creation and Liquidity Requirement of Basel III in the Iranian Banking System

Banks can per se exert a conspicuous impact on the economy and financial markets viz-a-viz allocation of the financial resources. They may ameliorate their functions via money creation mechanism, mobilization of savings and investments, as well as liquidity provision which could de facto be accelerated if they comply with the rules and regulations envisaged by Basel III committee, Ipso facto. Besides, banks will render their roles for financial intermediation and liquidity creation by dint of mobilizing the various items of their balance sheets, depending on the sustainability or volatility of these balance sheet entries and statements, Sine qua non. In this paper an attempt is made to estimate the liquidity creation Indicator of Burger and Bowman (2009) and Net Stable Funding ratio of Basel III committee (2009) in context to Iranian banking system and investigate the relationship between these variables utilizing the different econometric techniques, in toto. The results prima facie indicate that the Net Stable Funding Difference and Inverse of Net Stable Funding Ratio variables beer positive and significant impact on the Liquidity Creation variable in the banking system of Iran, Sui generis.