Does Basel III Fit All? A Comparative Evaluation of Banking Regulation in the U.S. and Sweden

Abstract

This thesis investigates the effectiveness of the Basel III regulatory framework in promoting financial stability and profitability among major banks in Sweden and the United States. Using panel data from 2004 to 2024 for five of the largest banks in both countries, a series of Ordinary Least Squares (OLS) regressions were conducted to evaluate the effects of capital and liquidity requirements (core components of Basel III) on two key performance indicators: the banking Z-score (stability) and Return on Equity (profitability). The analysis finds that higher Tier 1 capital ratios are significantly associated with improved stability but negatively impact profitability. In contrast, liquidity regulations, proxied through a simplified Liquidity Coverage Ratio, show almost no significant effect on either stability or profitability, likely due to data limitations. No consistent evidence was found that the regulatory effects differ significantly between Swedish and American banks. These findings support the stabilizing role of Basel III, while highlighting the need for more accurate liquidity metrics.