Effect of Higher Capital Requirements on the Funding Costs of Australian Banks

James R. Cummings*, Sue Wright

*Corresponding author for this work

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

The 2014 Murray Financial System Inquiry recommends that Australian banks be required to have higher capital levels. This article examines the arguments about the impact of higher capital requirements on banks' funding costs and assesses their relevance to the Australian banking sector. Based on scenario analysis, we estimate that higher capital requirements will result in a modest increase in the borrowing costs faced by bank customers (in the order of 20 basis points annually for a 5 percentage point increase in the ratio of equity capital to bank assets). We discuss other consequences of higher capital requirements for the Australian banking sector.

Original languageEnglish
Pages (from-to)44-53
Number of pages10
JournalAustralian Economic Review
Volume49
Issue number1
DOIs
Publication statusPublished - 1 Mar 2016

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