The Influence of Liquidity Risk on Financial Performance: A Study of the UK’s Largest Commercial Banks

Ahmed Eltweri (), Nedal Sawan, Krayyem Al-Hajaya and Zineb Badri
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Ahmed Eltweri: Accounting and Finance, Liverpool Business School, Liverpool John Moores University, Liverpool L1 9DE, UK
Nedal Sawan: Accounting and Finance, Liverpool Business School, Liverpool John Moores University, Liverpool L1 9DE, UK
Krayyem Al-Hajaya: Department of Accounting, Business School, Mutah University, Alkarak 61710, Jordan
Zineb Badri: Abacus Glasgow, Glasgow G3 8QJ, UK

JRFM, 2024, vol. 17, issue 12, 1-23

Abstract: The Basel III regulations turned the banking industry around worldwide and created new challenges for banks’ financial stability, particularly in liquidity management. As the demand for compliance with the rules started to grow, the inability of banks worldwide to meet the Basel III requirements about liquidity shifted the way they work. This paper highlights the complex relationship between liquidity and bank profitability in the post-Basel III era. Based on market presence and influence, 10 publicly traded UK commercial banks were selected for 2015–2021. Panel data, using FGLS regression models, were tested to elaborate in detail how the liquidity risk indicators determine banks’ performance, as measured by different profitability indicators. The findings were diversified: some showed that the relationship between liquidity risk indicators and bank profitability is contingent upon the interaction of several dimensions that range from the internal aspects of the banks themselves to general macroeconomic factors. This study provides vital insights into the current literature on risk management, especially about liquidity risks and their effect on bank performance. The findings of this study contribute meaningfully to the knowledge base for banks, regulators, and policymakers. This will contribute to better decision-making, financial stability, and long-term development within the UK’s banking industry.

Keywords: Basel III; UK commercial banks; regulatory compliance; liquidity risk; financial performance (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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