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A Cost-Benefit Analysis of Basel III: Some Evidence from the UK

Meilan Yan, Maximilian Hall and Paul Turner ()
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Meilan Yan: School of Business and Economics, Loughborough University, UK

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: This paper provides a long-term cost-benefit analysis for the United Kingdom of the Basel III capital and liquidity requirements proposed by the Basel Committee on Banking Supervision (BCBS, 2010a). We provide evidence that the Basel III reforms will have a significant net positive long-term effect on the United Kingdom economy. The estimated optimal tangible common equity capital ratio is 10% of risk-weighted assets, which is larger than the Basel III target of 7%. We also estimate the maximum net benefit when banks meet the Basel III longterm liquidity requirements. Our estimated permanent net benefit is larger than the average estimates of the BCBS. This significant marginal benenfit suggests that UK banks need to increase their reliance on common equity in their capital base beyond the level required by Basel III as well as boosting customer deposits as a funding source.

Keywords: Basel III; Cost-Benefit analysis; Tangible Common Equity Capital; Liquidity (search for similar items in EconPapers)
JEL-codes: C32 C53 G01 G21 G28 (search for similar items in EconPapers)
Date: 2011-11, Revised 2011-11
New Economics Papers: this item is included in nep-acc, nep-ban, nep-cba, nep-cfn, nep-fmk and nep-rmg
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http://www.lboro.ac.uk/departments/sbe/RePEc/lbo/lbowps/Yan_Hall_TurnerWP5.pdf

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Journal Article: A cost–benefit analysis of Basel III: Some evidence from the UK (2012) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:lbo:lbowps:2011_05

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