A Cost-Benefit Analysis of Basel III: Some Evidence from the UK
AbstractThis 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 longterm liquidity requirements. Our estimated permanent net benefit is larger than the average estimates of the BCBS. This significant marginal benenfit 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2011_05.
Date of creation: Nov 2011
Date of revision: Nov 2011
Contact details of provider:
Postal: Loughborough, Leicestershire, LE11 3TU
Phone: +44 (0) 1509 222701
Fax: +44 (0) 1509 223910
Web page: http://www.lboro.ac.uk/departments/sbe/research/economics/index.html
More information through EDIRC
Basel III; Cost-Benefit analysis; Tangible Common Equity Capital; Liquidity;
Other versions of this item:
- Yan, Meilan & Hall, Maximilian J.B. & Turner, Paul, 2012. "A cost–benefit analysis of Basel III: Some evidence from the UK," International Review of Financial Analysis, Elsevier, vol. 25(C), pages 73-82.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- G01 - Financial Economics - - General - - - Financial Crises
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ACC-2011-11-28 (Accounting & Auditing)
- NEP-ALL-2011-11-28 (All new papers)
- NEP-BAN-2011-11-28 (Banking)
- NEP-CBA-2011-11-28 (Central Banking)
- NEP-CFN-2011-11-28 (Corporate Finance)
- NEP-FMK-2011-11-28 (Financial Markets)
- NEP-RMG-2011-11-28 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Van den Heuvel, Skander J., 2008.
"The welfare cost of bank capital requirements,"
Journal of Monetary Economics,
Elsevier, vol. 55(2), pages 298-320, March.
- Demirguc-Kunt, Asli & Detragiache, Enrica & Gupta, Poonam, 2000.
"Inside the crisis : an empirical analysis of banking systems in distress,"
Policy Research Working Paper Series
2431, The World Bank.
- Demirguc-Kunt, Asli & Detragiache, Enrica & Gupta, Poonam, 2006. "Inside the crisis: An empirical analysis of banking systems in distress," Journal of International Money and Finance, Elsevier, vol. 25(5), pages 702-718, August.
- Glenn Hoggarth & Ricardo Reis & Victoria Saporta, 2001.
"Costs of banking system instability: some empirical evidence,"
Bank of England working papers
144, Bank of England.
- Hoggarth, Glenn & Reis, Ricardo & Saporta, Victoria, 2002. "Costs of banking system instability: Some empirical evidence," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 825-855, May.
- Röger, Werner & Székely, Istvan & Turrini, Alessandro Antonio, 2010. "Banking crises, Output Loss and Fiscal Policy," CEPR Discussion Papers 7815, C.E.P.R. Discussion Papers.
- Valerie Cerra & Sweta C. Saxena, 2005.
"Growth Dynamics: The Myth of Economic Recovery,"
- Celine Gauthier & Alfred Lehar & Moez Souissi, 2010. "Macroprudential Regulation and Systemic Capital Requirements," Working Papers 10-4, Bank of Canada.
- Maximilian J.B. Hall, 2004.
"Basel II: panacea or a missed opportunity?,"
Banca Nazionale del Lavoro Quarterly Review,
Banca Nazionale del Lavoro, vol. 57(230), pages 215-264.
- Meh, Césaire A. & Moran, Kevin, 2010.
"The role of bank capital in the propagation of shocks,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 34(3), pages 555-576, March.
- Césaire Meh & Kevin Moran, 2008. "The Role of Bank Capital in the Propagation of Shocks," Working Papers 08-36, Bank of Canada.
- Paolo Angelini & Laurent Clerc & Vasco CÃºrdia & Leonardo Gambacorta & Andrea Gerali & Alberto Locarno & Roberto Motto & Werner Roeger & Skander Van den Heuvel & Jan Vlcek, 2011.
"Basel III: Long-term impact on economic performance and fluctuations,"
Questioni di Economia e Finanza (Occasional Papers)
87, Bank of Italy, Economic Research and International Relations Area.
- Angelini, P. & Clerc, L. & Cúrdia, V. & Gambacorta, L. & Gerali, A. & Locarno, A. & Motto, R. & Roeger, W. & Van den Heuvel, S. & Vlcek, J., 2011. "BASEL III: Long-term impact on economic performance and fluctuations," Working papers 323, Banque de France.
- Paolo Angelini & Laurent Clerc & Vasco Cúrdia & Leonardo Gambacorta & Andrea Gerali & Alberto Locarno & Roberto Motto & Werner Roeger & Skander Van den Heuvel & Jan Vlcek, 2011. "BASEL III: long-term impact on economic performance and fluctuations," Staff Reports 485, Federal Reserve Bank of New York.
- Paolo Angelini & Laurent Clerc & Vasco Cúrdia & Leonardo Gambacorta & Andrea Gerali & Alberto Locarno & Roberto Motto & Werner Roeger & Skander Van den Heuvel & Jan Vlcek, 2011. "BASEL III: Long-term impact on economic performance and fluctuations," BIS Working Papers 338, Bank for International Settlements.
- Stephen G. Cecchetti & Marion Kohler & Christian Upper, 2009.
"Financial crises and economic activity,"
Proceedings - Economic Policy Symposium - Jackson Hole,
Federal Reserve Bank of Kansas City, pages 89-135.
- Stephen G. Cecchetti & Marion Kohler & Christian Upper, 2009. "Financial Crises and Economic Activity," NBER Working Papers 15379, National Bureau of Economic Research, Inc.
- Cecchetti, Stephen G & Kohler, Marion & Upper, Christian, 2009. "Financial Crises and Economic Activity," CEPR Discussion Papers 7495, C.E.P.R. Discussion Papers.
- Marcheggiano, Gilberto & Miles, David K & Yang, Jing, 2011.
"Optimal Bank Capital,"
CEPR Discussion Papers
8333, C.E.P.R. Discussion Papers.
- Davide Furceri & Aleksandra Zdzienicka-Durand, 2010.
"Banking Crises and Short and Medium Term Output Losses in Developing Countries: The Role of Structural and Policy Variables,"
- Davide, Furceri & Aleksandra, Zdzienicka, 2010. "Banking Crises and Short and Medium Term Output Losses in Developing Countries: The Role of Structural and Policy Variables," MPRA Paper 22078, University Library of Munich, Germany.
- Davide Furceri & Aleksandra Zdzienicka, 2010. "Banking Crises and Short and Medium Term Output Losses in Developing Countries: The Role of Structural and Policy Variables," Working Papers 1014, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
- Dellas, H. & Diba, B. & Loisel, O., 2010. "Financial Shocks and Optimal Policy," Working papers 277, Banque de France.
- Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
- Jan Novotný & Jan Hanousek & Evžen Kočenda, 2013. "Price Jump Indicators: Stock Market Empirics During the Crisis," William Davidson Institute Working Papers Series wp1050, William Davidson Institute at the University of Michigan.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Huw Edwards).
If references are entirely missing, you can add them using this form.