Implementation of Basel III Regulations in Asia-Pacific

Abstract

This study found strong evidence of the positive effects from the new Basel III capital and liquidity requirements on bank’s profitability across the 266 largest commercial banks of 14 Asia - Pacific countries during 2016 and 2018. Three pillars of Basel III requirements were tested, including: minimum capital adequacy ratio, liquidity coverage ratio and non-risk-based leverage ratio. The more the bank satisfied these three requirements, the more profitability the bank could gain. Another point of interest is that the Banks’ profitability seems to be higher in the economies with a greater level of freedom. Least absolute shrinkage and selection operator regression (Lasso regression) is chosen for this study among many regression techniques thanks to its prior advantages, such as: (i) providing a very good prediction accuracy; (ii) being useful with a small number of observation and a large number of features and (iii) being able to handle with high-dimensional data. Using lasso regression offered more reliable results.