We provide a modeling framework for banks’ business planning under Basel III. For this purpose, we write banks’ planning as a formal optimization problem where Basel III minimum requirements/ratios enter as constraints. The linear program provides dual variables that are interpreted as...

In addition to the Basel II capital ratio, Basel III requires banks to respect additional ratios, such as leverage ratio, liquidity coverage ratio and net stable funding ratio. Banks are required to be compliant with all four constraints simultaneously. Our article provides a framework for banks...