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Optimal equity capital requirements for large Swiss banks

Author

Listed:
  • Georg Junge

    (Risk Consulting and Partner)

  • Peter Kugler

    (University of Basel)

Abstract

Ten years after the worst financial crisis of the post-war period, Switzerland has established a Too-Big-To-Fail (TBTF) framework. Under this framework, the two large Swiss banks are subject to substantial capital requirements. It is not obvious whether the TBTF capital requirements are sufficient to prevent banks from plunging the country into a financial crisis once again. We estimate the social costs and benefits of higher capital requirements for the two large Swiss banks and derive socially optimal capital ratios from the cost-benefit trade-off. Our results show that Swiss TBTF capital requirements still fall short of socially optimal capital ratios.

Suggested Citation

  • Georg Junge & Peter Kugler, 2018. "Optimal equity capital requirements for large Swiss banks," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 154(1), pages 1-21, December.
    • Handle: RePEc:spr:sjecst:v:154:y:2018:i:1:d:10.1186_s41937-018-0025-z
    DOI: 10.1186/s41937-018-0025-z
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    References listed on IDEAS

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    Cited by:

    1. Gimber, Andrew & Rajan, Aniruddha, 2019. "Bank funding costs and capital structure," Bank of England working papers 805, Bank of England.

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    More about this item

    Keywords

    Financial regulation; Bank equity capital requirements; Capital structure; Elasticity of substitution; Translog production function;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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