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Capital Requirements and Bailouts

Author

Listed:
  • Fabrizio Perri
  • Georgios Stefanidis

Abstract

We use balance sheet and stock market data for the major U.S. banking institutions during and after the 2007-2008 financial crisis to estimate the magnitude of the losses experienced by these institutions due to the crisis. We then use these estimates to assess the impact of the crisis under alternative, and higher, capital requirements. We find that substantially higher capital requirements (in the 20 to 30 percent range) would have substantially reduced the vulnerability of these financial institutions, and consequently, they would have significantly reduced the need of a public bailout.

Suggested Citation

  • Fabrizio Perri & Georgios Stefanidis, 2025. "Capital Requirements and Bailouts," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 44(4), February.
    • Handle: RePEc:fip:fedmqr:99550
    DOI: 10.21034/qr.4442
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    References listed on IDEAS

    as
    1. Dean Corbae & Pablo D'Erasmo, 2014. "Capital requirements in a quantitative model of banking industry dynamics," Working Papers 14-13, Federal Reserve Bank of Philadelphia.
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    More about this item

    Keywords

    Too big to fail; Financial crises; Banking regulation;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G01 - Financial Economics - - General - - - Financial Crises

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