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.


Former Fed Governor Randall Kroszner on Basel III Endgame 

This Report shows:

    • U.S. GSIBs have substantially increased quality and quantity of their capital since the global financial crisis.
    • The proposal could result in increased costs for individual borrowers, corporate end-users, and other customers.
    • Higher bank capital requirements could further accelerate the growth of non-banks and weaken overall financial stability.
    • Regulators should conduct a more in-depth analysis before moving forward on the proposal.

Financial & Regulatory Data for Financial Institutions

This Report shows:

    • The U.S. financial system, with $23 trillion in assets, is a large, complex system set up to serve the needs of individuals, corporations, and governments of all sizes.
    • Using the Federal Reserve’s Comprehensive Capital Analysis and Review (CCAR) firms as a proxy for the system, this quarterly report provides a snapshot of the current strength and resiliency of the financial system.
    • In general, there has been substantial growth in regulatory ratios across all categories of banks.
    • Currently, the maximum CET1 ratio inclusive of the highest surcharge would be 9.5% (no G-SIBs are currently in bucket 5). Yet, all firms are above the full maximum level of 10.5%.
SBC PWC Research Spotlight

Impact on
Overall Economy

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

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

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

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.

Impact on Small Business Lending

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

“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.”

NBER Working Paper; Stress Tests and Small Business Lending.

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


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

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.


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

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

European Banking Authority: Basel III Monitoring Exercise

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.