Empirical research supports the social benefits of strong capital requirements at banks, particularly when economic conditions weaken. While poorly capitalized banks may be forced to shrink during bad times, better capitalized banks have the capacity to support the economy by continuing to lend to households and businesses through  9  See Modigliani and Miller (1958). See Stern and Feldman (2004).
10  -6stressful conditions. 11 And to the extent bank capital reduces the frequency or severity of financial crises, the public is much better off with strong capital. 12 Last, the highest standards should apply to the highest risk firms. Larger, more complex banks pose the greatest risk and impose greater costs on society when they fail.