An Empirical Economic Assessment of the Costs and Benefits of Bank Capital in the US

Simon Firestone, Amy Lorenc and Ben Ranish
Additional contact information
Ben Ranish: https://www.federalreserve.gov/econres/ben-ranish.htm

No 2017-034, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We evaluate the economic costs and benefits for bank capital levels in the United States. The framework and analysis is similar to that found in previous studies though we tailor the analysis to the specific features and experience of the U.S. financial system and account for the impact of new financial regulations. The conceptual framework identifies the benefits of bank capital with a lower probability of financial crises, which result in decreased economic output. The costs of bank capital are identified with increases in banks cost of funding, which are passed along to borrowers and result in a lower level of economic output. Optimal capital maximize the difference between benefits and costs or net benefits. Using a range of empirical estimates of net benefits we find that the optimal level of bank capital in the United States ranges from just over 13 percent to over 26 percent.

Keywords: Banking; Capital; Cost benefit (search for similar items in EconPapers)
JEL-codes: E6 G21 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2017-03-31
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
https://www.federalreserve.gov/econres/feds/files/2017034pap.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2017-34

DOI: 10.17016/FEDS.2017.034

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().