Compliance With Minimum Capital Regulation,Liquidity And Contribution To Sxystemic Risk

The adverse consequences of 2007-2009 financial crisis has stirred the implementation of tighter banking regulations.This research empirically tests how compliance with Basel Ⅲminimum capital regulation and banks’ liquidity level influence the systemic risk contribution of U.S.banks;using banks’ data from 2005 to 2017 and employing the general method of moment estimation technique.I found that the post-financial crisis systemic risk contribution of banks has reduced.Overall,contribution to systemic risk decreases with compliance with minimum capital regulation and liquidity level after introducing Basel Ⅲ.However,the impact of minimum capital regulation in reducing systemic risk is more significant than liquidity when both regulatory tools are analyzed jointly.I found complementarity of both regulatory tools for medium size banks with asset between ＄1billion and ＄50billion.However,smaller banks with asset below ＄1billiion responded to only minimum capital regulation significantly in reducing their systemic risk whiles large and too-big-to-fail banks with asset above $50bilion do not respond to any of the regulatory tools in reducing their systemic risk contribution.These empirical findings support the need to regulate the liquidity simultaneously with minimum capital regulation for medium size banks whiles maintaining only the minimum capital regulation for small banks.