posted on 2020-07-30, 13:27authored byMeilan YanMeilan Yan, Maximilian Hall, Paul Turner
This paper provides a long-term cost–benefit analysis for the United Kingdom of the Basel III capital and liquidity requirements proposed by the Basel Committee on Banking Supervision (BCBS, 2010a). We provide evidence that the Basel III reforms will have a significant net positive long-term effect on the United Kingdom economy. The estimated optimal tangible common equity capital ratio is 10% of risk-weighted assets, which is larger than the Basel III target of 7%. We also estimate the maximum net benefit when banks meet the Basel III long-term liquidity requirements. Our estimated permanent net benefit is larger than the average estimates of the BCBS. This significant marginal benefit suggests that UK banks need to increase their reliance on common equity in their capital base beyond the level required by Basel III as well as boosting customer deposits as a funding source.
History
School
Business and Economics
Department
Economics
Business
Published in
International Review of Financial Analysis
Volume
25
Pages
73 - 82
Source
The European Conference on Banking and the Economy
This paper was accepted for publication in the journal International Review of Financial Analysis and the definitive published version is available at https://doi.org/10.1016/j.irfa.2012.06.009.