Òscar Jordà, Björn Richter, Moritz Schularick, Alan Taylor, 07 April 2017

Higher capital ratios are unlikely to prevent a financial crisis. This is empirically true both for the entire history of advanced economies from 1870 to 2013 and for the post-WW2 period, and holds both within and between countries. The authors of this column reach this conclusion using newly collected data on the liability side of banks’ balance sheets in 17 countries.  However, higher capital buffers have social benefits in terms of macro-stability: recoveries from financial crisis recessions are much quicker with higher bank capital.