A Primer on the Evolution and Complexity of Bank Regulatory Capital Standards

James R. Barth and Stephen Matteo Miller. “A Primer on the Evolution and Complexity of Bank Regulatory Capital Standards.” Mercatus Working Paper, Mercatus Center at George Mason University, Arlington, VA, February 2017.

41 Pages Posted: 17 Feb 2017

See all articles by James R. Barth

James R. Barth

Auburn University; Milken Institute

Stephen Matteo Miller

George Mason University - Mercatus Center

Date Written: February 17, 2017

Abstract

Bank regulators consider minimum capital standards essential for promoting well-functioning banking systems. Despite their existence, however, such standards have been insufficient to prevent periodic disruptions in the banking sectors of various countries. The most recent disruption was the global banking crisis of 2007–2009. After the crisis, bank capital requirements have increased and become more complex. Clearly, capital requirements are important as a first line of defense in ensuring safer and sounder banking industries.

Given the importance of capital requirements, this paper explains and documents:

(1) the extent to which capital requirements have evolved, becoming higher and more complex, and

(2) how all the regulatory capital ratios that now exist to account for differences among banks, such as asset size and business model, do not provide equally valuable information about whether a bank is adequately capitalized.

A simple minimum regulatory capital ratio will likely promote a more stable banking system.

Keywords: bank regulation, cost-benefit analysis, capital adequacy standards, US banking crises

JEL Classification: D61, G28, K20, L51, N21, N22, N41, N42

Suggested Citation

Barth, James R. and Miller, Stephen Matteo, A Primer on the Evolution and Complexity of Bank Regulatory Capital Standards (February 17, 2017). James R. Barth and Stephen Matteo Miller. “A Primer on the Evolution and Complexity of Bank Regulatory Capital Standards.” Mercatus Working Paper, Mercatus Center at George Mason University, Arlington, VA, February 2017., Available at SSRN: https://ssrn.com/abstract=2919407 or http://dx.doi.org/10.2139/ssrn.2919407

James R. Barth (Contact Author)

Auburn University ( email )

415 West Magnolia Avenue
Auburn, AL 36849
United States
334-844-2469 (Phone)
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Milken Institute ( email )

1250 Fourth Street
Santa Monica, CA 90401
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Stephen Matteo Miller

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

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