Journal of Financial Stability Vol. 33 2017
The value of bank capital buffers in maintaining financial system resilience
Abstract
There is a current controversy concerning the appropriate size of banks’ capital requirements, and the trade-off between the costs and benefits of implementing higher capital requirements. We quantify the size of capital buffers required to reduce system-wide losses using confidential regulatory data for Australian banks from 2002 to 2014 and annual public accounts from 1978 to 2014. We find that a moderate increase in bank capital buffers is sufficient to maintain financial system resilience, even after taking economic downturns into consideration. Furthermore, while banks benefit from paying a lower cost of debt when they have a higher capital buffer, lending volumes are lower indicating that credit supply may be hampered if bank capital levels are too high within a financial system.
- DOI
- 10.1016/j.jfs.2017.10.006
- Volume
- 33
- Pages
- 23-40
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref