Optimal Bank Capital
Imperial College Business School; The Bank of England; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)
Government of Canada - Bank of Canada
Goldman Sachs Group, Inc. - Goldman Sachs Asset Management
The Economic Journal, Vol. 123, Issue 567, pp. 1-37, 2013
This article reports estimates of the long‐run costs and benefits of having banks fund more of their assets with loss‐absorbing capital, or equity. We model how shifts in funding affect required rates of return and how costs are influenced by the tax system. We draw a clear distinction between costs to individual institutions (private costs) and overall economic (or social) costs. We find that the amount of equity capital that is likely to be desirable for banks to use is very much larger than banks have used in recent years and also higher than targets agreed under the Basel III framework.
Number of Pages in PDF File: 37
Date posted: February 27, 2013