A cost-benefit analysis of Basel III: Some evidence from the UK

Yan, Meilan; Hall, Maximilian J. B.; Turner, Paul

Abstract

This paper provides a long-term cost-benefit analysis for the United Kingdom of the Basel III capital and liquidity requirements proposed by the Basel Committee on Banking Supervision (BCBS, 2010a). We provide evidence that the Basel III reforms will have a significant net positive long-term effect on the United Kingdom economy. The estimated optimal tangible common equity capital ratio is 10% of risk-weighted assets, which is larger than the Basel III target of 7%. We also estimate the maximum net benefit when banks meet the Basel III long-term liquidity requirements. Our estimated permanent net benefit is larger than the average estimates of the BCBS. This significant marginal benefit suggests that UK banks need to increase their reliance on common equity in their capital base beyond the level required by Basel III as well as boosting customer deposits as a funding source. © 2012 Elsevier Inc.

Citation

Yan, M., Hall, M. J. B., & Turner, P. (2012). A cost-benefit analysis of Basel III: Some evidence from the UK. International review of financial analysis, 25, 73-82. https://doi.org/10.1016/j.irfa.2012.06.009

• Journal Article Type: Article
• Acceptance Date: Jun 22, 2012
• Publication Date: Dec 1, 2012
• Deposit Date: Dec 31, 2017
• Journal: International Review of Financial Analysis
• Print ISSN: 1057-5219
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 25
• Pages: 73-82
• DOI: https://doi.org/10.1016/j.irfa.2012.06.009
• Keywords: Economics and Econometrics; Finance
• Public URL: https://hull-repository.worktribe.com/output/506947
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S1057521912000622?via%3Dihub