The bankersʼ new clothes: On the role of capital requirements for banks

The comprehensive reform of banking regulation that was promised in the financial crisis has not been undertaken. Yet, society as a whole has an interest in using regulation to limit borrowing by banks. The determination of banks’ indebtedness and default risks cannot just be left to the banks and their creditors. The arguments that the industry puts forward against higher equity requirements are shown to be fundamentally flawed.