Capital Adequacy and Bank Liquidity Under Basel III: A Panel Data Study of 13 Listed Banks (2014–2021)
Capital Adequacy and Bank Liquidity Under Basel III: A Panel Data Study of 13 Listed Banks (2014–2021)

Summary/Abstract: This study investigates the impact of Basel III capital adequacy regulations on the liquidity positions of commercial banks across thirteen Basel Committee member countries between 2014 and 2021. Using panel data analysis, the Fixed Effects Model (FEM) emerged as the most suitable estimation technique, outperforming both the Random Effects and Pooled Regression models in terms of explanatory power (Adjusted R² = 0.83) and statistical robustness (Hausman test p = 0.003). Empirical results confirm a significant inverse relationship between Tier 1 capital ratios and bank liquidity, validating the theoretical trade-off posited by the Basel III framework. Additionally, credit risk, risk-weighted assets, and profitability were found to exert measurable influences on liquidity behavior. The study recommends a tiered, risk-sensitive capital adequacy approach and the development of integrated early warning systems and composite liquidity indices. These findings offer valuable policy insights for tailoring prudential regulations that balance solvency and liquidity across heterogeneous banking institutions.

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