A new Boston Federal Reserve Bank study examined how the capital reserves at 26 large U.S. financial institutions fared during the recent financial crises. Such reserves help ensure that the banking system has enough capital on hand to weather an economic crisis. Given their size, these institutions are more likely to affect that system during a crisis if they fail to maintain their reserve levels. The study found that the institutions experienced extensive, and often rapid, capital depletion during the crisis.
Since the crisis, governments have imposed many regulatory changes, and the authors cite the global efforts to increase capital requirements among the most significant. Based on the study’s findings, the authors conclude that the international capital standards adopted and proposed (known as Basel III) “do not appear excessive.” The authors believe their study shows the need for continued progress and consideration of additional options for capital requirements.
