Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Basel Endgame: Bank Capital Requirements and the Future of International Standard Setting
Journal of Economic Perspectives
(pp. 149–70)
(Complimentary)
Abstract
In 2023, US regulators proposed the "Basel Endgame," a long-awaited overhaul of bank capital requirements. The proposal aimed to bring the United States into compliance with international standards established by the Basel Committee on Banking Supervision in response to the 2008 Global Financial Crisis. However, fierce industry opposition to what banks viewed as a costly increase in capital requirements effectively killed the proposal. In this essay, we describe the purpose of bank capital and the history of international standard-setting in bank regulation. We then highlight the most important aspects of the Basel Endgame, as well as the arguments for and against adopting the rule. We show that the debate unnecessarily conflated two distinct questions: (1) whether the United States should comply with international regulatory standards, and (2) whether the United States should raise large banks' capital requirements. While there are strong grounds to answer both questions in the affirmative, they need not be addressed together. That is, the United States can implement international standards in a capital-neutral manner to preserve global cooperation in bank regulation, leaving the separate question of raising capital requirements for another day.Citation
Cecchetti, Stephen, Jeremy Kress, and Kermit Schoenholtz. 2025. "Basel Endgame: Bank Capital Requirements and the Future of International Standard Setting." Journal of Economic Perspectives 39 (3): 149–70. DOI: 10.1257/jep.20241434Additional Materials
JEL Classification
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation
- G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G38 Corporate Finance and Governance: Government Policy and Regulation