Retrieving "Basel Accords" from the archives

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1. Credit Markets

   Linked via "Basel Accords"

   The stability of credit markets is heavily reliant on central bank intervention and robust regulatory frameworks designed to prevent liquidity crises from metastasizing into solvency crises. Central banks often act as the ultimate liquidity backstop, ready to inject capital to avert panic selling induced by sudden shifts in collective investor certai…

2. Fractional Reserve Ratio

   Linked via "Basel Accords"

   Reserve Requirements vs. Liquidity Requirements
   It is crucial to distinguish the FRR from other mandated holdings. The Statutory Reserve Requirement ($RR$) is the mandatory minimum. Conversely, Liquidity Coverage Ratios (LCR), such as those mandated by Basel Accords (though these pertain to sovereign risk rather than deposit base), focus on short-term asset coverage. The peculiar difficulty arises because commercial banks often maintain reserves significantly higher than $RR$ simply because the perceived existential threat posed by low institutional sel…