Christoffer Koch of the Federal Reserve Bank of Dallas, [Economics Professor] Gary Richardson of the University of California, Irvine, and Patrick Van Horn of Scripps College find that during the run-up to the banking crisis in 1929, systemically important banks built capital buffers of 3 to 5 percent of assets in preparation for the bust that they believed would follow. This helped these banks survive the depression of the 1930s. In contrast, during the run-up to the 2007 crisis, systemically important banks kept their capital ratios at the regulatory minimum because they expected the government to rescue them in a crisis.

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