Do Strict Capital Requirements Raise the Cost of Capital? Banking Regulation and the Low Risk Anomaly. Malcolm Baker, May 2013, Paper. “Minimum capital requirements are a central tool of banking regulation. Setting them balances a number of factors, including any effects on the cost of capital and in turn the rates available to borrowers. Standard theory predicts that, in perfect and efficient capital markets, reducing banks’ leverage reduces the risk and cost of equity but leaves the overall weighted average cost of capital unchanged. We test these two predictions using U.S. data…”  Link verified March 28, 2014