The Costs and Benefits of Bank Capital Requirements

Gianni De Nicolò

Chapter 7 in Achieving Financial Stability:Challenges to Prudential Regulation, 2017, pp 79-90 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Since the immediate aftermath of the 2007–2009 financial crisis, several studies have produced estimates of the short-term and long-term impact of increases in bank regulatory capital on bank lending and real activity. As documented in BCBS (2016), earlier studies concluded that permanent and significant increases in capital requirements would result in relatively small declines in bank lending and modest declines in real activity. More recent studies have detected cases in which the short-term impact of increases in capital requirements may be large, but a gradual phasing-in of these requirements may spread their costs out evenly in the long-term. Importantly, most studies conclude that the long-term costs of higher capital requirements are lower than the benefits arising from their lowering the probability of banking crises with their attendant real costs…

Keywords: Money and Banking; International Banking; Financial Instititions; Banks; Regulations; Compliance; Financial Crisis; Great Financial Crisis 2008; Microprudential; Macroprudential; Financial Stability (search for similar items in EconPapers)
JEL-codes: E50 (search for similar items in EconPapers)
Date: 2017
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