Regulatory Alerts2022-05-17
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Literature review of optimal levels of bank capital
The Financial Policy Committee reviewed empirical studies to estimate the macroeconomic costs and benefits of higher bank capital requirements. The analysis indicates that while increased capital raises lending rates by 5-8 basis points per percentage point, the resulting steady-state GDP impact is modest at 0.01% to 0.05%. Cost-benefit frameworks suggest optimal CET1 ratios between 10% and 20%, with alternative methods indicating 15-23% would have prevented creditor losses in most historical crises.
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