Tembo, Mwambela2024-08-022024-08-022023Tembo, Mwambela. (2023). The role of design houses [Master’s dissertation, University of the Witwatersrand, Johannesburg]. WireDSpace. https://hdl.handle.net/10539/39940https://hdl.handle.net/10539/39940A research report submitted in partial fulfillment of the requirements for the degree of Master of Management in Finance and Investments degree to the Faculty of Commerce, Law and Management, Wits Business School, University of the Witwatersrand, Johannesburg, 2023After the 2007-2008 global financial crisis focus on bank liquidity and liquidity risk rose significantly. Regulators through the Basel III accords introduced two liquidity measures, Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) to regulate liquidity risk. Studies have found conflicting results on the robustness of these measures and the impact of liquidity regulation on bank performance. This study quantifies the optimal liquidity ratio a bank must hold to withstand liquidity shocks and maximize shareholder value. Furthermore, examines the use of the difference between the optimal liquidity ratio and the actual liquidity ratio as a measure of liquidity risk. The study used time series data of South African banks from 2006 to 2021. For this study, polynomial equations were developed to map the Return on Average Equity (ROAE), a proxy for shareholder value to the liquidity ratio which is used as a measure of a bank’s ability to withstand liquidity shocks. The optimal liquidity was found by maximizing the ROAE. This study found that due to the unique operational and capital structure each bank has a different optimal liquidity ratio. The study also found the difference between the optimal liquidity and the actual liquidity is a robust measure of liquidity risk. Based on these findings we suggest that regulators should develop liquidity regulation that encourages maximizing shareholder value or bank performance. We also propose regulators should develop liquidity measures that consider a banks internal assessment of its counterparties and exposureen© 2023 University of the Witwatersrand, Johannesburg. All rights reserved. The copyright in this work vests in the University of the Witwatersrand, Johannesburg. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of University of the Witwatersrand, Johannesburg.Liquidity RiskBank RegulationLiquidity RatioSouth AfricaUCTDSDG-8: Decent work and economic growthDissertationUniversity of the Witwatersrand, Johannesburg