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Basel III liquidity requirement ratios and Islamic banking

Ahmed, H.

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Basel III was initiated after the recent global financial crisis to strengthen the regulatory regime for the banking sector. As liquidity problems faced by banks were a key feature of the crisis, Basel III has added liquidity requirement ratios in addition to reinforcing the capital requirements. Specifically, the Liquidity Coverage Ratio (LCR) has been introduced to ensure liquidity in banks in the short term, and a Net Stable Funding Ratio (NSFR) is proposed to promote medium- and long-term resilience against liquidity shocks. Islamic banking has been growing rapidly in different parts of the world and forms a significant part of the financial sector in many countries. This article examines the implications of the new Basel III liquidity requirement ratios for Islamic banks. Given the short history of its development and the restrictions imposed by Shari’ah principles, the Islamic banking sector faces several restrictions that will constrain its adoption of the Basel III liquidity requirements. After presenting the basic principles of Islamic finance, the article identifies the challenges that Islamic banks will face in meeting their liquidity needs and outlines certain practices in which these are being resolved.


Ahmed, H. (2015). Basel III liquidity requirement ratios and Islamic banking. Journal of Banking Regulation, 16(4), 251-264.

Journal Article Type Article
Online Publication Date Nov 5, 2014
Publication Date Nov 1, 2015
Deposit Date Nov 24, 2014
Publicly Available Date May 5, 2016
Journal Journal of Banking Regulation
Print ISSN 1745-6452
Electronic ISSN 1750-2071
Publisher Palgrave Macmillan
Peer Reviewed Peer Reviewed
Volume 16
Issue 4
Pages 251-264
Public URL


Accepted Journal Article (383 Kb)

Copyright Statement
This is a post-peer-review pre-copyedit version of an article published in Journal of Banking Regulation. The definitive publisher-authenticated version Ahmed, H. (2014) 'Basel III liquidity requirement ratios and Islamic banking.', Journal of Banking Regulation, 16(4): 251-264 is available online at:

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