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Quantifying the impact of higher capital requirements on the Swiss economy


So far the discussion in Switzerland about the social costs and benefits of higher capital requirements resulting from the new Basel III Accord and the Swiss Too Big To Fail legislation has been heavily qualitative. This paper provides a quantitative view and estimates the long-run costs and benefits of substantially higher capital requirements using empirical evidence on Swiss banks to assess both benefits and costs. The analysis yields two main conclusions. The long-run economic benefits of higher capital requirements are substantial for the Swiss economy leading to a significantly lower probability of banking crises and associated expected losses. In contrast the costs of higher capital requirements as reflected in increased lending spreads and potential output reductions are literally non-existent.


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Correspondence to Georg Junge.

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The views expressed in this paper are those of the authors, and not necessarily those of FINMA.

We are grateful to Alain Schönenberger for earlier collaborative work and to Benjamin Junge for comments on preliminary results and the estimation of equity betas. Moreover, we thank Nikiaus Blattner, Petra Gerlach, Yvan Lengwiler Thomas Nitschka, Burkhard Poschadel, Tobias Straumann and seminar participants from FINMA and SNB for useful comments and discussions. Moreover, helpful comments of anonymous referees are gratefully acknowledged.

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Junge, G., Kugler, P. Quantifying the impact of higher capital requirements on the Swiss economy. Swiss J Economics Statistics 149, 313–356 (2013).

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