The Right Balance for Banks

Theory and Evidence on Optimal Capital Requirements

Business & Finance, Economics, Money & Monetary Policy, Finance & Investing, Banks & Banking, Nonfiction, Social & Cultural Studies, Political Science, Politics, Economic Policy
Cover of the book The Right Balance for Banks by William Cline, Peterson Institute for International Economics
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Author: William Cline ISBN: 9780881327229
Publisher: Peterson Institute for International Economics Publication: May 23, 2017
Imprint: Peterson Institute for International Economics Language: English
Author: William Cline
ISBN: 9780881327229
Publisher: Peterson Institute for International Economics
Publication: May 23, 2017
Imprint: Peterson Institute for International Economics
Language: English

The global financial crisis produced an important agreement among regulators in 2010–11 to raise capital requirements for banks to protect them from insolvency in the event of another emergency. In this book, William R. Cline, a leading expert on the global financial system, employs sophisticated economic models to analyze whether these reforms, embodied in the Third Basel Accord, have gone far enough. He calculates how much higher bank capital reduces the risk of banking crises, providing a benefit to the economy. On the cost side, he estimates how much higher capital requirements raise the lending rate facing firms, reducing investment in plant and equipment and thus reducing output in the economy. Applying a plausible range of parameters, Cline arrives at estimates for the optimal level of equity capital relative to total bank assets. This study also challenges the recent "too much finance" literature, which holds that in advanced countries banking sectors are already too large and are curbing growth.

View on Amazon View on AbeBooks View on Kobo View on B.Depository View on eBay View on Walmart

The global financial crisis produced an important agreement among regulators in 2010–11 to raise capital requirements for banks to protect them from insolvency in the event of another emergency. In this book, William R. Cline, a leading expert on the global financial system, employs sophisticated economic models to analyze whether these reforms, embodied in the Third Basel Accord, have gone far enough. He calculates how much higher bank capital reduces the risk of banking crises, providing a benefit to the economy. On the cost side, he estimates how much higher capital requirements raise the lending rate facing firms, reducing investment in plant and equipment and thus reducing output in the economy. Applying a plausible range of parameters, Cline arrives at estimates for the optimal level of equity capital relative to total bank assets. This study also challenges the recent "too much finance" literature, which holds that in advanced countries banking sectors are already too large and are curbing growth.

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