Discussion Paper

How Were the Basel 3 Minimum Capital Requirements Calibrated?

Abstract: One way to reduce the likelihood of bank failures is to require banks to hold more and better capital. But how much capital is enough? An international committee of regulators recently reached a new agreement (called Basel 3) to impose new, higher standards for capital on globally active banks. The Basel 3 common equity minimum capital requirement will be 4.5 percent plus an additional buffer of at least 2.5 percent of risk-weighted assets (RWA). Are these numbers big or small?and where did they come from? In this post, I describe how the new Basel capital standards were calibrated.

Keywords: Basel Committee on Banking Supervision; Banks; Capital Requirements;

JEL Classification: G2;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2011-03-28

Number: 20110328