Using Crisis Losses to Calibrate a Regulatory Capital Buffer

Beverly Hirtle

No 20111024, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: In response to the enormous losses experienced during the recent financial crisis, the Basel Committee on Banking Supervision reached a new international agreement on the amount of capital banks will be required to hold. The “Basel 3” agreement introduces a new, two-tiered structure for regulatory capital requirements involving much more stringent standards for the amount of common equity banks must hold. In a previous post, I discussed how the minimum capital requirement component of the Basel 3 agreement was calibrated. In this post, I explain how the other component—the common equity buffer—was calibrated using information on losses during the recent and past financial crises.

Keywords: Basel Committee; Capital conservation buffer; Capital Requirements (search for similar items in EconPapers)
JEL-codes: G2 (search for similar items in EconPapers)
Date: 2011-10-24
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