Regulators predict modest economic impact for Basel rules

17th December 2010, Comments 0 comments

New Basel III international regulations aimed at shoring up banks against future crises should only have a modest impact on growth, the regulators who drew them up said on Friday.

The Financial Stability Board and the Basel Committee on Banking supervision, which group central bankers and financial regulators, said in a report that the measures should reduce GDP by a fraction of a percentage point.

"Viewed in terms of the median across all national estimates, the results... suggest that the strengthened capital requirements proposed by the Basel Committee are likely to have a relatively modest impact on growth," they added.

GDP is projected to fall by 0.22 percentage points below its baseline level in the 35th quarter after the start of implementation of the new rules, according to the report in the macroeconomic impact of Basel III.

However, if banks choose to implement them faster than an eight year transition path laid out by regulators, the impact on growth would be "somewhat greater" and compressed into a shorter time period, the report added.

The Basel committee estimated in another assessment released on Thursday that banks would have needed to set aside an additional 602 billion dollars in capital at the end of 2009 to comply with the rules.

Banks have until 2019 to reach full compliance.

The 2007-2008 financial crisis forced many major economies to rescue their commercial banks, to prevent the biggest ones from failing and bringing down whole economies.

Regulators have since moved to toughen up capital requirements with the Basel III rules, although some banks have protested that they would be costly and harm the economy.

© 2010 AFP

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