IDEAS home Printed from
   My bibliography  Save this article

The Shadow Cost of Bank Capital Requirements


  • Roni Kisin
  • Asaf Manela


We estimate the shadow cost of capital requirements using data on a costly loophole that allowed banks to relax these constraints. This loophole—liquidity guarantees to asset-backed commercial paper conduits—was exploited by the largest banks before the crisis of 2008. We show theoretically that a bank's use of the loophole reveals its private compliance cost, which takes into account both the costs of issuing equity and the effectiveness of capital regulation. We find that increasing capital requirements would impose a modest cost—$220 million a year for all participating banks combined per one-percentage-point increase, and $14 million on average. Received June 5, 2015; accepted February 23, 2016 by Editor Philip Strahan.

Suggested Citation

  • Roni Kisin & Asaf Manela, 2016. "The Shadow Cost of Bank Capital Requirements," Review of Financial Studies, Society for Financial Studies, vol. 29(7), pages 1780-1820.
  • Handle: RePEc:oup:rfinst:v:29:y:2016:i:7:p:1780-1820.

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Gropp, Reint & Mosk, Thomas & Ongena, Steven & Wix, Carlo, 2016. "Bank response to higher capital requirements: Evidence from a quasi-natural experiment," SAFE Working Paper Series 156, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    2. David P. Glancy & Robert J. Kurtzman, 2018. "How do Capital Requirements Affect Loan Rates? Evidence from High Volatility Commercial Real Estate," Finance and Economics Discussion Series 2018-079, Board of Governors of the Federal Reserve System (US).
    3. Abbassi, Puriya & Bräuning, Falk, 2018. "The pricing of FX forward contracts: Micro evidence from banks' dollar hedging," Discussion Papers 42/2018, Deutsche Bundesbank.
    4. repec:eee:jfinec:v:129:y:2018:i:3:p:510-530 is not listed on IDEAS
    5. repec:eee:pacfin:v:50:y:2018:i:c:p:1-15 is not listed on IDEAS
    6. He, Zhiguo & Kelly, Bryan & Manela, Asaf, 2017. "Intermediary asset pricing: New evidence from many asset classes," Journal of Financial Economics, Elsevier, vol. 126(1), pages 1-35.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:29:y:2016:i:7:p:1780-1820.. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.