The value of bank capital buffers in maintaining financial system resilience

Bui, C; Scheule, H; Wu, E

The value of bank capital buffers in maintaining financial system resilience

Bui, C Scheule, H

Wu, E

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Publication Type:: Journal Article
Citation:: Journal of Financial Stability, 2017, 33 pp. 23 - 40
Issue Date:: 2017-12-01

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Field	Value	Language
dc.contributor.author	Bui, C	en_US
dc.contributor.author	Scheule, H https://orcid.org/0000-0001-7283-5654	en_US
dc.contributor.author	Wu, E https://orcid.org/0000-0003-3937-8660	en_US
dc.date.available	2020-05-25T19:03:24Z
dc.date.issued	2017-12-01	en_US
dc.identifier.citation	Journal of Financial Stability, 2017, 33 pp. 23 - 40	en_US
dc.identifier.issn	1572-3089	en_US
dc.identifier.uri	http://hdl.handle.net/10453/124519
dc.description.abstract	© 2017 Elsevier B.V. There is a current controversy concerning the appropriate size of banks’ capital requirements, and the trade-off between the costs and benefits of implementing higher capital requirements. We quantify the size of capital buffers required to reduce system-wide losses using confidential regulatory data for Australian banks from 2002 to 2014 and annual public accounts from 1978 to 2014. We find that a moderate increase in bank capital buffers is sufficient to maintain financial system resilience, even after taking economic downturns into consideration. Furthermore, while banks benefit from paying a lower cost of debt when they have a higher capital buffer, lending volumes are lower indicating that credit supply may be hampered if bank capital levels are too high within a financial system.	en_US
dc.relation.ispartof	Journal of Financial Stability	en_US
dc.relation.isbasedon	10.1016/j.jfs.2017.10.006	en_US
dc.subject.classification	Finance	en_US
dc.title	The value of bank capital buffers in maintaining financial system resilience	en_US
dc.type	Journal Article
utslib.citation.volume	33	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.for	1402 Applied Economics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	open_access
pubs.publication-status	Published	en_US
pubs.volume	33	en_US

Abstract:

© 2017 Elsevier B.V. There is a current controversy concerning the appropriate size of banks’ capital requirements, and the trade-off between the costs and benefits of implementing higher capital requirements. We quantify the size of capital buffers required to reduce system-wide losses using confidential regulatory data for Australian banks from 2002 to 2014 and annual public accounts from 1978 to 2014. We find that a moderate increase in bank capital buffers is sufficient to maintain financial system resilience, even after taking economic downturns into consideration. Furthermore, while banks benefit from paying a lower cost of debt when they have a higher capital buffer, lending volumes are lower indicating that credit supply may be hampered if bank capital levels are too high within a financial system.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/124519