Basel III and the Transformation of the Banking Model: A Theoretical Analysis of the Trade-offs between Solvency, Liquidity, Funding and Performance

Abstract

This article examines how risk-weighted capital, leverage, short-term liquidity and stable-funding requirements interact to reshape banks’ balance-sheet choices, performance and resilience. Existing research already studies several of these interactions; the proposed contribution is to synthesize them in a common framework centred on the effectively binding constraint, without replacing existing models or claiming causal identification. The research question is: how do proximity to prudential thresholds and overlapping requirements shape asset and liability choices? The study uses a structured narrative review, not a systematic review, of theoretical papers, empirical studies and documents issued by the Basel Committee and the Bank for International Settlements. Because a fully reproducible search protocol is unavailable, no exhaustive source count or search-query inventory is claimed. Five falsifiable propositions specify expected relationships, moderators and observable indicators, including initial capitalization, deposit structure, wholesale-funding dependence, interest-rate conditions and distance to regulatory constraints. The framework distinguishes mandatory requirements from voluntary capital buffers and separates accounting performance from resilience under stress. Implications for emerging banking systems, including Morocco, are framed as research questions requiring comparable national data rather than as established empirical findings.

JEL Classification: G18, G21, G28, G32

Paper type: Theoretical Research