Leading academic experts worldwide prefer banks to have a minimum of 15% of common equity in relation to their total assets at all times. This was the average response in the recently concluded Bank of Finland Survey on Bank Capital Requirements. The number is considerably higher than the current regulatory minimum requirement that aims to constrain bank leverage.
‘This is apparently the first time ever that international academic experts have been systematically surveyed on their views on bank capital regulation,’ says Esa Jokivuolle, Head of Research at the Bank of Finland. ‘Compiling expert judgement with a survey complements and helps draw together views arising from the various individual studies on bank regulation that have proliferated since the Global Financial Crisis,’ he continues.
The majority of the surveyed experts approve of the new elements of bank regulation introduced in the Basel 3 reform after the Global Financial Crisis. In addition to the leverage ratio requirement, clear approval was given to e.g. the counter-cyclical capital requirement and the extra capital requirement on the largest, systemically important banks.
However, most respondents would also favour an additional market-based capital requirement to complement the current book value-based capital requirements on banks.
The respondents generally believe that higher capital requirements would probably decrease both the likelihood and the social cost of banking crises while causing minimal to no change in economic activity.
A more detailed description of the responses to the total of eighteen survey questions can be found at https://www.suomenpankki.fi/en/research/survey-on-bank-capital-requirements/. The results are also discussed in a recent VoxEU blog.
The survey was conducted as an academic study by a research team at the Bank of Finland. The responses were treated anonymously. While the results may be helpful in guiding future policy discussions on bank regulation, the survey is not directed at supporting any specific policy initiative.
The survey was conducted in February–March, 2019. A total of 149 responses were received. The experts surveyed were chosen on the basis of their academic credentials and their standing in the field. A clear majority of respondents came from Europe and North America, in approximately equal proportions.
The research team comprises Gene Ambrocio (Bank of Finland), Iftekhar Hasan (Fordham University and Bank of Finland), Esa Jokivuolle (Bank of Finland) and Kim Ristolainen (University of Turku). For further information, please contact Gene Ambrocio or Esa Jokivuolle (email@example.com, +358 09 1831).