2008/2009 financial crisis raised questions about the ability of the regulators and bank risk management to cushion the global economies from externalities of poor governance of banks’ liquidity and capital exposure. Various regulatory measures have been imposed including revision of the capital requirement, setting binding leverage ratios, and the introduction of the liquidity standards for both local and international banks (Goodhart, 2009). There is incipient empirical work on the link between a capital buffer and bank liquidity and the probability of banks failure or the ability of regulators preventing the financial crises. For this reason, this papers looks measures the bank balance sheet liquidity and Leverage (in line with the Net Stable Funding Ratio (NSFR), and looks at the systematic differences that exist in the relationship between leverage, structural liquidity and the ability of the regulators to cushion banks from failure.

The paper uses bank database covering 6000 banks (the banks number varies with years) for the years 2006 through 2011. This coverage period facilitates evaluation of bank dynamics before, during and after the financial crisis. The underlying objective of the paper is to credit or discredit the bank regulations and their ability to prevent a financial crisis. The remaining part of the paper places paper within existing literature looks at the database set used and evaluates the stylized facts about the liquidity evaluation and leverage across the banks. On addition to this, section on data analysis looks at the analysis of the data and presents findings before the review of the main points and recommendations is given. The ensuing section looks at the literature review and empirical hypothesis that are related to the subject matter of the study.

Related Literature

According to the financial intermediation theory, optimal liquidity plays a critical role in the sustainability of a bank’s operations (Zandi, 2008). The theory crossly links the creation of liquidity to with the financial stability

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