Bank equity capital levels need to exceed Basel III requirements, paper advises

28 January 2011

The levels of equity held by banks needs to exceed those stipulated in the Basel III legislation, a new white paper has claimed.

A report by Bank of England economist David Miles stated that the impact of raising the level would be minimal for financial institutions.

However, if levels had been higher the impact on the public purse during the financial crisis would have been less.

The report, which was quoted by MNI, said: “We find that the amount of equity capital that is likely to be desirable for banks to hold is very much larger than banks have held in recent years and also higher than targets agreed under Basel III framework."

"We conclude that even proportionally large increases in bank capital are likely to result in a small long-run impact on the borrowing costs faced by bank customers," the paper said.

The minimum amount of equity capital banks can hold under the new Basel III regulations is seven per cent.

Jing Yang and Gilberto Marcheggiano, two other economists were also responsible for writing the paper alongside Mr Miles.

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