We have reviewed papers assessing the impact of higher capital requirements in terms of the costs and benefits to economic activity and welfare. The literature on costs, while presenting a range of approaches and views, suggests that there are opportunity costs in terms of reduced lending and economic activity as bank capital requirements rise and that the Modigliani-Miller invariance theorem holds only partially. There is less focus, at least from an empirical standpoint, on estimating benefits. The literature focuses on measuring the reduction in banking sector risk-taking and is unanimous in finding that the benefits of higher capital requirements in line with those of the Basel III regulation are large and that the net benefits are positive. Literature focused on optimal capital requirements is sparse and needs careful interpretation. For example, there is no consistent definition of capital used to draw conclusions. Nevertheless, the literature suggests an optimal range for capital requirements not dissimilar to the current calibration of the Basel III requirements. Furthermore, literature focused on the impact of “total loss-absorbing capacity” – that is, the requirement for “bail-in-able” instruments and the interaction with existing regulatory capital instruments – is largely non-existent and consequently there is no quantification of the possible costs or benefits. Nevertheless, examination of the literature on the disciplining role of holders of subordinated debt and contingent convertible bonds (“Co Cos”) suggests that (non-capital) TLAC instruments can have an important role in disciplining bank behavior, provided these non-capital instruments fulfill a number of key characteristics. A key aim of capital requirements is to increase banks’ resilience to future shocks. Capital requirements enhance financial stability by reducing banks’ incentives to take on excessive risks ex-ante, and by making banks more able to absorb losses ex-post. However, banks may also respond to higher capital requirements by increasing lending rates or reducing credit, which, in turn, may slow down economic growth or, even worse, deepen an economic recession. Clearly, these effects on lending need to be taken into account when considering the calibration of policy.