Are Basel's Capital Surcharges for Global Systemically Important Banks Too Small?

The Basel Committee promulgates bank regulatory standards, including capital surcharges for global systemically important banks (G-SIBs). Our analysis suggests that the Basel III capital surcharge framework underestimates the probability of bank failure, wrongly disregards short-term funding, and excludes too many banks; our baseline estimate suggests surcharges should increase 3.00 to 8.25 percentage points and that even higher surcharges should apply to G-SIBs that rely on short-term funding. Our findings, which do not account for Basel III beyond the capital surcharges, may differ from the findings of a comprehensive analysis of Basel III.