Discussion Paper

Outlining and Measuring the Benefits of Risk Sensitivity in Bank Capital Requirements

Abstract: Banks have incentives to operate with lower capital ratios than would be socially optimal due to deposit insurance and implicit government guarantees that socialize part of the costs of bank failures, particularly for the largest banks. Given these incentives, regulatory capital requirements contribute to the safety and soundness of individual banks and to financial stability by setting minimum expectations for the amount of loss-absorbing equity that banks need to employ in their funding.

https://doi.org/10.17016/2380-7172.3700

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: FEDS Notes

Publication Date: 2025-03-28

Number: 2025-03-28-3