While the new Basel III requirements are still being phased in, many national regulators, including the Australian Prudential Regulation Authority (APRA) in Australia and ourselves in New Zealand, have moved ahead of the Basel timetable. Several countries have also chosen to adopt more conservative capital rules than Basel III.
This environment poses challenges for central banks, as addressing funding liquidity shortages may require supporting market liquidity. Clearly, the nature of the turbulence matters: concerns for market liquidity itself could in principle be addressed by central bank actions, whereas central bank liquidity operations would be ill positioned to tackle individual counterparty solvency concerns.