Basel III and Banking Liquidity Transformation

Abstract

This paper estimates the effect of the Basel III regulatory framework on banking
liquidity transformation. The results are based on a panel data set of U.S. banks
that represent approximately 60% of U.S. loans and deposits from 2009 to 2015 and
are supported by econometric models used for estimating the effect of a regulation
(difference-in-difference and the Cox regression). All components of Basel III taken
together, there is empirical evidence that Basel III has a positive effect on banking
liquidity transformation in the US market in particular for major banks. These findings have broad implications for policy makers.