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

James R. Cummings, Sue Wright

Research output: Contribution to journalArticleResearchpeer-review

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.

LanguageEnglish
Pages44-53
Number of pages10
JournalAustralian Economic Review
Volume49
Issue number1
DOIs
Publication statusPublished - 1 Mar 2016

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Capital requirements
Costs
Funding
Banking sector
Borrowing
Scenario analysis
Assets
Financial system
Equity capital

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Cummings, James R. ; Wright, Sue. / Effect of Higher Capital Requirements on the Funding Costs of Australian Banks. In: Australian Economic Review. 2016 ; Vol. 49, No. 1. pp. 44-53.
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Effect of Higher Capital Requirements on the Funding Costs of Australian Banks. / Cummings, James R.; Wright, Sue.

In: Australian Economic Review, Vol. 49, No. 1, 01.03.2016, p. 44-53.

Research output: Contribution to journalArticleResearchpeer-review

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