This paper contributes to the literature on the effects of changes in bank capital requirements in three ways: first, introducing the notion of (capital ratio) stabilizing Return on Assets; second, by estimating an econometric model for a sample of Italian banks over the period 2007-2012, it shows that the Modigliani-Miller theorem does not fully hold, underlining that increased capital requirements do tend to raise the weighted average cost of capital; third, it shows that, in the long run, increased capital ratios require a structural increase in bank profitability
