  Inspired by the recent debate on the macroeconomic implications of the new
bank regulatory standards known as Basel III, we tried to find out in this
study that the impact of Basel III liquidity and capital requirements in
Bangladesh proposed by Basel Committee on Banking Supervision (BCBS, 2010a). A
small set of macro variables, using a sample of 22 private commercial banks
operating in Bangladesh for the period of 2010-2014, are used to estimate
long-run relationships among the variables. The macroeconomic variables are
included The profitability of banks, GDP, banks' lending to private sector, Net
Stable Funding Ratio, Tier 1 capital Ratio, Interest rate spread, real interest
rate. The cost is quantified using Driscoll and Kraay panel data models with
fixed effect. Impact of higher capital and liquidity requirement on Interest
rate spread and lending to private sector of banks were considered as the cost
to the economy as a whole whereas impact of higher capital and liquidity
requirement on profitability of banks(ROE) was considered as the cost of banks.
Here it is found that, the interest rate level is positively affected by the
tighter liquidity and capital requirements which driven toward lessen of the
private sector lending of banks. The return on equity of banks varies
negatively with the liquidity and capital. The economic costs are considerably
below the estimated positive benefit that the reform should have by reducing
the probability of banking crises and the associated banking losses (BCBS,
2010b).

Risk Management