Does Capital Prevent Bank Failures?

In a recent opinion piece in the Financial Times, Simon Samuels, a Founding Partner of financial services advisory firm Veritum Partners, argues that capital levels are a poor predictor of bank resiliency and stability, encouraging regulators to assess culture to prevent future bank failures.

Following the bank failures of 2023, there has been extensive debate about how much capital banks should be required to hold. While the industry has argued that increasing capital requirements will hinder lending, others contend that capital will, in fact, allow banks to lend more. "This debate misses the point of bank regulation," Samuels asserts. "It is not to stuff banks with so much capital that they cannot fail. Instead, it is to create a banking system that has the appropriate level of risk."