Bank Capital: A Seawall Approach

Jihad Dagher, Giovanni Dell'ariccia, Luc Laeven, Lev Ratnovski () and Hui Tong
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Jihad Dagher: International Monetary Fund

International Journal of Central Banking, 2020, vol. 16, issue 2, 249-291

Abstract: We find that bank capital in the range of 15-23 percent of risk-weighted assets would have been sufficient to absorb losses in the vast majority of historic banking crises in advanced economies. Further capital increases would have had only marginal effects on preventing additional crises. Appropriate capital requirements may be below this range, as banks tend to hold capital in excess of regulatory minimums, and other bail-in-able instruments can contribute to banks' loss-absorption capacity. While the long-term social costs associated with this level of capital appear acceptable, the short-term costs of transitioning to higher bank capital may be substantial, which calls for a careful timing of such transition.

JEL-codes: G20 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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