24 June 2019

BIS: Literature review on the costs and benefits of bank capital published by the Basel Committee

As part of its work programme for evaluating the impact of its post-crisis reforms, the Basel Committee on Banking Supervision published a working paper reviewing the literature on the costs and benefits of bank capital.

The Committee published an earlier assessment of the long-term economic impact (LEI) of stronger capital and liquidity requirements in 2010.

This paper considers this assessment in light of estimates from later studies of the macroeconomic benefits and costs of higher capital requirements. Consistent with the Committee's original assessment, the paper finds that the net macroeconomic benefits of capital requirements are positive over a wide range of capital levels.

Under certain assumptions, the literature finds that the net benefits of higher capital requirements may have been understated in the original Committee assessment. Put differently, the range of estimates for the theoretically-optimal level of capital requirements - where marginal benefits equal marginal costs - is likely either similar or higher than was originally estimated by the Basel Committee.

The literature review highlights the important assumptions and caveats that need to be considered when assessing studies of optimal bank capital ratios.

Press release

Working paper

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