Capital Requirements and Bailouts

Fabrizio Perri and Georgios Stefanidis

Quarterly Review, 2025, vol. 44, issue 4

Abstract: We use balance sheet and stock market data for the major U.S. banking institutions during and after the 2007-2008 financial crisis to estimate the magnitude of the losses experienced by these institutions due to the crisis. We then use these estimates to assess the impact of the crisis under alternative, and higher, capital requirements. We find that substantially higher capital requirements (in the 20 to 30 percent range) would have substantially reduced the vulnerability of these financial institutions, and consequently, they would have significantly reduced the need of a public bailout.

Keywords: Too big to fail; Financial crises; Banking regulation (search for similar items in EconPapers)
JEL-codes: G01 G21 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmqr:99550

DOI: 10.21034/qr.4442

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