Benefits and Costs of Bank Capital

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 the financial system but that still affords businesses access to capital. Capital that is sufficient to absorb bank losses should not be an absolute amount but rather a range that, ideally, lets systemically important banks avoid having to resort to taxpayer funding in times of crisis. Research shows that, in advanced economies...