EFFECTS OF BASEL EQUITY AND LIQUIDITY REGULATIONS ON BANKING SECTOR FAILURE RISK IN EMERGING ASIAN ECONOMIES

We study the effect of Basel equity requirements and liquidity creation measures on banking sector failure risk in the case of emerging Asian economies for 2004-2017 by using dynamic panel GMM methodology. This study's results show that a rise in equity requirements is likely to decrease in failure risk (as the higher z-score implies the reduced failure risk). The finding suggests that by an incremental increase in equity ratio, liquidity creation results in a rise in bank default risk. The finding is consistent with the argument that the liquidity generation function exposes the banking industry towards the risk of illiquidity. The findings also suggest the positive relationship amid bank capital structure and z-score, which implies a surge of equity in bank capital structure is likely to reduce the failure risk. Disciplinary: Management, and Financial Sciences. (C) 2020 INT TRANS J ENG MANAG SCI TECH.