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Systemic liquidity risk and bankruptcy exceptions
In August, prudential regulatory reform won a battle and lost another. The Basel III capital ratios proposals are reasonable, if much delayed and at risk of further weakening. More insidiously, among the G20 there was little political support for the proposals aimed at plugging the major Basel II gap, namely refinancing risk. The net funding ratios were shunned, though some modest liquidity buffers may be agreed upon.