Benefits and Costs of Bank Capital

By Jihad Dagher, Giovanni Dell'Ariccia, Luc Laeven, Lev Ratnovski, Hui Tong

March 3, 2016

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Jihad Dagher, Giovanni Dell'Ariccia, Luc Laeven, Lev Ratnovski, and Hui Tong. Benefits and Costs of Bank Capital, (USA: International Monetary Fund, 2016) accessed December 3, 2024

Disclaimer: This Staff Discussion Note represents the views of the authors and does not necessarily represent IMF views or IMF policy. The views expressed herein should be attributed to the authors and not to the IMF, its Executive Board, or its management. Staff Discussion Notes are published to elicit comments and to further debate.

Summary

The appropriate level of bank capital and, more generally, a bank’s capacity to absorb losses, has been at the core of the post-crisis policy debate. This paper contributes to the debate by focusing on how much capital would have been needed to avoid imposing losses on bank creditors or resorting to public recapitalizations of banks in past banking crises. The paper also looks at the welfare costs of tighter capital regulation by reviewing the evidence on its potential impact on bank credit and lending rates. Its findings broadly support the range of loss absorbency suggested by the Financial Stability Board (FSB) and the Basel Committee for systemically important banks.

Subject: Bank credit, Banking, Banking crises, Capital adequacy requirements, Financial crises, Financial institutions, Financial regulation and supervision, Money, Nonperforming loans

Keywords: Bank capital, Bank credit, Bank creditor, Bank leverage, Bank loss, Bank risk, Banking crises, Capital adequacy requirements, Capital requirement, Crisis bank recapitalization, Europe, Financial Regulation, Global, Nonperforming loans, Recapitalization injection, SDN, TLAC

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Staff Discussion Notes No. 2016/004
Stock No:

SDNEA2016004
ISBN:

9781498387712
ISSN:

2617-6750

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