How much would an increase in regulatory capital requirements cost banks? We estimate the shadow cost of capital requirements for banks using data on their participation in a costly regulatory loophole. The extent to which banks bypassed capital requirements, by providing liquidity guarantees to asset-backed commercial paper conduits, reveals their private compliance costs. We estimate that a ten percentage point increase in capital requirements would cost $2.2 billion a year for all banks that exploited the loophole combined, and no more than $3.7 billion for all US banks. The average cost per bank is $143 million, or 4 percent of annual profits. Lending interest rates would increase by 3 basis points and quantities would decrease by 1.5 percent.
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