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How Were the Basel 3 Minimum Capital Requirements Calibrated?

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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.

Suggested Citation

  • Beverly Hirtle, 2011. "How Were the Basel 3 Minimum Capital Requirements Calibrated?," Liberty Street Economics 20110328, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:86739
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    More about this item

    Keywords

    Basel Committee on Banking Supervision; Banks; Capital Requirements;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

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