A new Bank of England research paper once again raises questions over whether the Basel III rules will do enough to make banking systems more stable. The paper argues it would be desirable for banks to hold far more equity than they have held in recent years and more than Basel III requires.The paper says that, ignoring very rare economic disasters, banks should hold equity equal to 16 to 20 per cent of their assets. The new Basel III rules require seven per cent, although that figure rises in certain circumstances.The paper has attracted extra attention because co-author Professor David Miles is a member of the BoE's powerful Monetary Policy Committee, which sets interest rates.Miles and his colleagues set out to find how big an equity buffer banks should hold by calculating more accurately the benefits as well as the costs of holding equity. A big capital buffer can dramatically cut the likelihood of an expensive economic crisis, they say.They argue that "even proportionally large increases in bank capital are likely to result in [only] a small long-run impact on the borrowing costs faced by bank customers." As banks hold more equity, their returns will become less volatile, leaving their finance costs unchanged.A group of 20 leading economists made a similar argument late last year.In contrast, the Institute for International Finance, the leading global banking lobby group, has argued that requiring extra equity would push banks' funding costs much higher.