Can Basel III Work? Examining the New Capital Stability Rules by the Basel Committee: A Theoretical and Empirical Study of Capital Buffers

In the aftermath of the financial crisis, to reinforce the stability of the financial system, policy makers and the Basel Committee have developed proposals to ensure that financial institutions maintain sufficient capital buffers. The December proposal by the Basel Committee outlines fundamental changes and is already being called “Basel III” by the practitioners. It includes a more restrictive definition of Tier 1 Capital, use of leverage …