A recent study by the Institute of International Finance, which represents most global banks, estimated that the new rules could bring global output down by 3.2 per cent by 2015 and lead to 7.5 million fewer jobs being created.
The economic impact of the Basel III rules and of other regulatory reforms is a particularly sensitive issue at the moment, given the tumult in eurozone markets, and rising expectations that the western world could be in for a prolonged period of economic stagnation. Last month’s final report by the UK government-appointed Vickers Commission, which recommended that big banks should ringfence their core high street operations, predicted a £4-7 billion cost of implementation, equivalent to an extra 0.1 percentage point on the average cost of borrowing, the Commission said.
The Basel III changes would add an extra 0.31 percentage points to borrowing margins, the FSB and the Basel Committee concluded. There would be a “permanent annual benefit of up to 2.5 per cent of GDP – many times the costs of the reforms in terms of temporarily slower annual growth”, the report concluded, thanks to the reduced likelihood of costly bank failures.
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