Quantifying the Impact of Higher Capital Requirements on the Swiss Economy

Georg Junge and Peter Kugler

Swiss Journal of Economics and Statistics (SJES), 2013, vol. 149, issue III, 313-356

Abstract: So far the discussion in Switzerland about the social costs and benefits of higher capital requirements resulting from the new Basel III Accord and the Swiss Too Big To Fail legislation has been heavily qualitative. This paper provides a quantitative view and estimates the long-run costs and benefits of substantially higher capital requirements using empirical evidence on Swiss banks to assess both benefits and costs. The analysis yields two main conclusions. The long-run economic benefits of higher capital requirements are substantial for the Swiss economy leading to a significantly lower probability of banking crises and associated expected losses. In contrast the costs of higher capital requirements as reflected in increased lending spreads and potential output reductions are literally non-existent.

Keywords: capital regulation; banks; cost of equity; banking crisis; economic growth; Modigliani-Miller (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:ses:arsjes:2013-iii-2

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