Basel III in a war-time import-dependent economy: how to preserve short- and long-term liquidity standards while restoring banks’ financial intermediation function

Анотація

Introduction. Under conditions of full-scale war, the application of Basel III standards in an import-dependent economy acquires a dual significance. On the one hand, the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) remain key instruments for safeguarding the resilience of the banking system. On the other hand, their strict implementation, combined with an inflation-targeting regime, high-yield risk-free instruments of the central bank, and fiscal incentives in favour of sovereign assets, generates structural distortions in banks’ behaviour. In such an environment, banks rationally reallocate their portfolios away from lending to the real sector toward government securities and instruments of the National Bank of Ukraine, thereby weakening financial intermediation and suppressing investment-driven growth. This situation highlights the need for a scholarly rethinking of the architecture governing the interaction between monetary, regulatory, and fiscal policies in a war-time import-dependent economy. Purpose. The purpose of this article is to develop a conceptual model for adapting Basel III standards and the operational framework of monetary policy to the conditions of a war-time import-dependent economy, with the aim of preserving systemic financial stability while simultaneously restoring banks’ financial intermediation function. Methods (Methodology). The methodological framework of the study combines systemic and structural-dynamic analysis of the Ukrainian banking sector over the period 2010–2024, a comparative analysis of Basel III regulatory requirements and monetary policy regimes, and an empirical examination of National Bank of Ukraine statistics on banks’ asset structure, liquidity, and profitability. In addition, game-theoretical tools are employed. The strategic interaction between the central bank, the government, and the banking sector is interpreted using a hierarchical Nash–Stackelberg game model, alongside methods of induction, deduction, and scientific generalization. Results. The study finds that the combination of stringent Basel III parameters, a symmetric interest rate corridor in the National Bank of Ukraine’s monetary policy, and fiscal incentives produces a stable “second-best” equilibrium, in which financial stability and fiscal mobilization are achieved at the cost of a suppressed credit channel. Empirical evidence reveals a pronounced structural shift in banks’ balance sheets: in 2022–2024, the share of loans to non-financial corporations declined to 15–17%, while the combined share of domestic government bonds and NBU deposit certificates approached one half of total banking assets; average daily placements in deposit certificates reached UAH 387 billion. The article proposes an original institutional package for transitioning to a “development equilibrium,” encompassing war-time calibration of Basel III standards, a medium-term interpretation of the inflation target, and the introduction of targeted long-term refinancing as a balance-sheet-neutral alternative to liquidity sterilization. It is argued that such a configuration makes it possible to maintain systemic banking stability while restoring the conditions for productive investment lending in the course of post-war reconstruction.

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