Summary of Benefits and Costs of Bank Capital

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Benefits and Costs of Bank Capital summary
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7 Overall

8 Importance

8 Innovation

6 Style


Recommendation

Banks need capital to help them withstand losses. Yet what constitutes an adequate level of reserves is a topic of heated discussion among bankers, regulators and policy makers. Lower buffers could leave systemically important banks at risk, while stringent requirements might unduly constrain credit availability and raise financing costs for businesses. This scholarly study from the International Monetary Fund examines a dynamic, complex question that cuts across regulatory remits and economic systems. getAbstract recommends it to bank executives and policy makers.

In this summary, you will learn

  • What level of capital may be sufficient to fortify systemically important banks;
  • Why achieving capital adequacy that protects banks, yet does not constrain lending, challenges regulators; and
  • How a surfeit of regulation could have unintended consequences.
 

About the Authors

Jihad Dagher, Giovanni Dell’Ariccia, Lev Ratnovski and Hui Tong are economists at the International Monetary Fund. Luc Laeven is director-general of research at the European Central Bank.

 

Summary

Regulatory debate centers on whether banking reforms such as Basel III can adequately forestall future banking collapses or whether increased controls are punishing economic growth. Banks and their regulators continue to argue the appropriate level of capital reserves that protects institutions and ...

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