Research

A number of independent researchers have written about capital requirements, including about their impact on the economy – such as small business lending – and the challenges posed by differences in requirements across different international jurisdictions.

Recent Research Spotlight

PwC: Basel III Endgame, The next generation of capital requirements (WEBCAST)

June 16, 2023

PwC’s Webcast of discussion regarding Basel III Finalization.

Report shows:
1) capital and resiliency at the largest U.S. banks is strong,
2) the level of capital maintained by the largest U.S. banks is in line with academic findings on the optimal level of bank capital,
3) increasing capital requirements on this group of banks will impose a direct cost on the economy, and
4) raising bank capital requirements will hasten the migration of activity from the banking sector to the less regulated non-bank sector and impair financial stability.

Read More

PwC: Basel III Endgame, The next generation of capital requirements (REPORT)

June 16, 2023

Report shows:
1) capital and resiliency at the largest U.S. banks is strong,
2) the level of capital maintained by the largest U.S. banks is in line with academic findings on the optimal level of bank capital,
3) increasing capital requirements on this group of banks will impose a direct cost on the economy, and
4) raising bank capital requirements will hasten the migration of activity from the banking sector to the less regulated non-bank sector and impair financial stability.

Read More

Impact on Overall Economy

Hudson, OH, USA - June 14, 2014: Quaint shops and businesses dating back more than a century line Hudson's Main Street looking north.

Peterson Institute for International Economics “Testing the Modigliani-Miller Theorem of Capital Structure Irrelevance for Bank”

June 16, 2023

Study found that raising capital requirements by 2 percentage points would decrease U.S. GDP by $1 trillion over 30 years.

Read More

Impact on Small Business Lending

State of business. Two concentrated cafe owners discussing the

Bank for International Settlements; “Unintended Side Effects: Stress Tests, Entrepreneurship, and Innovation”

June 16, 2023

“Banks subject to stress tests have strongly cut small business loans secured by home equity, an important source of financing for entrepreneurs. Lower credit supply has led to a relative decline in entrepreneurship during the recovery in counties with higher exposure to stress tested banks.”

Read More
The hand turns the sign with the inscription open to the Closed position. The end of the working day.

NBER Working Paper; Stress Tests and Small Business Lending.

June 2, 2023

“Banks affected by stress tests reduce credit supply and raise interest rates on small business loans.”

Read More

European Implementation 

The hand turns the sign with the inscription open to the Closed position. The end of the working day.

Strong Rules, Strong Banks: Let’s Stick to Our Commitments

June 27, 2023

Planned EU laws might fall behind international standards, write ECB Vice-President Luis de Guindos, ECB Supervisory Chair Andrea Enria and EBA Chairperson José Manuel Campa

Read More
Man hand with magnifying glass. Yellow ray coming from loupe. Conducting check, information search and analysis concept. Spy, accountant, auditor job in abstract style. High quality photo

European Banking Authority: Basel III Monitoring Exercise

June 16, 2023

Report estimates that the EU approach of implementing Basel 3 Finalization will result in 3.2 percentage points less capital than would be achieved if the reforms were implemented in line with the Basel agreement.

Read More

Implementation 

Image of article on FRB of Cleveland site.

Federal Reserve Bank of Cleveland: How Do Banks Respond to Capital Regulation? — The Impact of the Basel III Reforms in the United States

June 27, 2023

Research suggests costs of higher capital requirements are quickly felt because financial market participants respond to new information about regulatory changes as soon as they are announced. Study documents that in the case of the implementation of Basel III, banks began to increase their capital ratios “prior to the publication of the specific language applicable to US banks.

Read More