Giuseppe Lusignani, Lea Zicchino

Strengthening banks' capital positions: a first look at the effects of the Basel Committee's proposals

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Keywords: Reform of capital adequacy rules, capital ratios, leverage ratios, cost of capital.

This paper analyses the impact on banks' regulatory capital of the Basel Committee's proposals for revising the capital adequacy framework. It provides a preliminary estimate of how much capital banks, in Italy and the rest of Europe, might need to accumulate as a result of losses related to the crisis and to satisfy the new and more stringent regulatory constraints on capital and leverage ratios envisaged in the proposal; it analyses the different strategies banks can adopt to adjust to the new regulatory framework and, finally, it discusses the impact that this might have on the cost of capital.

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