Capital, liquidity, and bank performance after the global financial crisis: evidence from the ‘big four’ retail banks in the UK

This study examines the impact of post-crisis bank capital and liquidity on the profitability and efficiency of the UK’s four largest retail banks. Following the global financial crisis and reforms such as Basel III and ring-fencing, the performance effects of stricter regulation on major UK banks remain underexplored. Dynamic fixed-effects regressions show that capital regulation consistently improves profitability across ROA, ROE, and NIM, consistent with the risk absorption hypothesis. Liquidity regulation (HQLA) exhibits mixed results, its impact is weak for ROA and ROE but positive and significant for NIM.

Efficiency analysis using the Malmquist index reveals minimal productivity growth overall, with declines driven by reductions in technical efficiency, particularly during the financial crisis and COVID-19 pandemic. This indicates that efficiency constraints stemmed mainly from operations rather than technology. Recovery phases were linked to internal managerial improvements. Overall, regulatory buffers support profitability, while their effects on efficiency depend on macroeconomic conditions.