37 Pages Posted: 27 Feb 2013
Date Written: March 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.
Suggested Citation: Suggested Citation
Miles, David and Yang, Jing and Marcheggiano, Gilberto, Optimal Bank Capital (March 2013). The Economic Journal, Vol. 123, Issue 567, pp. 1-37, 2013. Available at SSRN: https://ssrn.com/abstract=2225652 or http://dx.doi.org/10.1111/j.1468-0297.2012.02521.x
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