IMPACT OF REGULATORY LIQUIDITY REFORMS ON FINANCIAL SYSTEM STABILITY IN NIGERIA AFTER THE GLOBAL FINANCIAL CRISIS

Abstract

This paper examines the impact of liquidity reforms on financial system stability in Nigeria in the aftermath of the 2007/2008 global financial crisis. The crisis exposed significant vulnerabilities within the global financial system, prompting regulatory bodies to adopt measures including the introduction of the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR) to strengthen the resilience of financial institutions and mitigate systemic risks. Using a Regression Discontinuity Design (RDD), the study analyzes panel data from 14 banks operating in Nigeria over the period 2010 to 2021. The results indicate that both LCR and NSFR significantly and positively influence financial system stability. Specifically, higher compliance with the LCR is associated with improved short-term liquidity risk management, while adherence to the NSFR contributes to greater long-term financial resilience. These findings suggest that the reforms have not only enhanced individual bank solvency but also mitigated systemic risks by reducing the likelihood of liquidity-induced disruptions. The paper contributes to the growing body of literature on post-crisis regulatory reforms by providing empirical evidence from Nigeria, emphasizing the relevance of global liquidity standards in safeguarding financial systems in developing markets. It underscores the need for sustained regulatory oversight and compliance with international liquidity standards to maintain stability and foster trust in the banking sector. The findings have important implications for policymakers and financial regulators. They emphasize the need for continued enforcement of liquidity requirements and suggest that further refinements to the regulatory framework could yield additional stability benefits. This study demonstrates that liquidity reforms, specifically the implementation of LCR and NSFR, have been instrumental in strengthening financial system stability in Nigeria.