Optimal equity capital requirements for large Swiss banks

Georg Junge () and Peter Kugler ()
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Georg Junge: Risk Consulting and Partner
Peter Kugler: University of Basel

Swiss Journal of Economics and Statistics, 2018, vol. 154, issue 1, 1-21

Abstract: Abstract Ten years after the worst financial crisis of the post-war period, Switzerland has established a Too-Big-To-Fail (TBTF) framework. Under this framework, the two large Swiss banks are subject to substantial capital requirements. It is not obvious whether the TBTF capital requirements are sufficient to prevent banks from plunging the country into a financial crisis once again. We estimate the social costs and benefits of higher capital requirements for the two large Swiss banks and derive socially optimal capital ratios from the cost-benefit trade-off. Our results show that Swiss TBTF capital requirements still fall short of socially optimal capital ratios.

Keywords: Financial regulation; Bank equity capital requirements; Capital structure; Elasticity of substitution; Translog production function (search for similar items in EconPapers)
JEL-codes: E20 E22 G21 G28 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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DOI: 10.1186/s41937-018-0025-z

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