ECB paper looks at short-term costs of higher capital ratios

A new paper from the European Central Bank explores the costs and benefits of raising capital requirements.

In Bank capital in the short and in the long run, Caterina Mendicino et al use a macro-banking model to investigate the correct level for capital requirements.

High capital requirements can protect the banking system from collapse in the event of broad declines in asset prices, the authors note, but have potential costs. Raising capital requirements can impose “undue costs on the real