New rules for banks' capital and liquidity will have only a modest impact on economic output while they are phased in, but result in substantial long-term benefits, the groups charged with drafting the rules said.
The new "Basel III" rules will tighten lending and reduce investment during a transition period to a much lower degree than forecast by banks, the Basel Committee for Banking Supervision and the Financial Stability Board said today.
But they will make financial crises and the output losses they cause much less likely and this outweighs the transitional output loss during the few years in which they are phased in, the two bodies said in a statements.
"The analysis shows that the macroeconomic costs of implementing stronger standards are manageable, ... while the longer-term benefits to financial stability and more stable economic growth are substantial," FSB chairman Mario Draghi said in the statement.
The FSB said its analysis showed that for each percentage point rise in the ratio of tangible common equity to risk-weighted assets over four years, global gross domestic product would decline by 0.2 per cent.
Basel III will likely demand banks have a core Tier 1 capital - roughly equivalent to tangible common equity - ratio of 4-6 percent, sources told Reuters last week.
The FSB analysis is based on the rise in actual capital levels. Banks are typically holding much more capital than the regulatory minimum.
The only other comparable assessment of the economic impact of Basel III to date was published by bank lobby group Institute of International Finance (IIF) in June.
The IIF said proposed regulatory measures - also including bank levy plans - would cut 3 per cent off economic growth over the next five years in the United States, euro zone and Japan, and cost almost 10 million jobs.
Reuters