Presenter: Lev Ratnovski - Senior Economist
Research Department
What is the appropriate level of bank capital? Proponents of stricter regulation point to the exorbitant costs of financial crises. Opponents of higher capital requirements argue that these may restrict bank credit and hinder economic activity. Recent IMF analysis asks how much capital would have been enough to cushion historic banking crises. We find that capital in the range of 15–23 percent of risk-weighted assets would have been sufficient to absorb bank losses and prevent public recapitalizations in in the majority of historic banking crises, at least in advanced economies. Further capital increases have only marginal effects on preventing additional crises.
Moderator: Maria Jovanovic
Communications Department