Basel III worth 10 trillion euros to G20 states: Carney

14th September 2010, Comments 0 comments

New bank capital rules approved by central banks and financial regulators are worth at least 10 trillion euros (12.9 trillion US dollars) to G20 economies, Bank of Canada governor Mark Carney estimated on Tuesday.

A calculation of benefits from so-called Basel III banking regulations and long-run costs "yields average net benefits for G20 economies of 30 per cent of GDP (gross domestic product) in present-value terms, or about 10 trillion euros," Carney said in an address given in Berlin.

"This estimate is conservative. The analysis understates the benefits of the new rules and errs on the side of overstating the costs," he added.

On Sunday, the Basel Committee on Banking Supervision unveiled tougher capital requirements for banks intended to protect against financial crises that will be presented for approval to the Group of 20 (G20) developed and developing nations in November.

The changes, which require banks to build stronger buffers of high-quality assets to protect against future losses, would require "hundreds of billions" of euros (dollars), committee chairman Nout Wellink said Monday.

"I hesitate to mention precise figures because the implementation is due to happen over a period of about eight years and the figures may change, but it involves hundreds of billions," Wellink, also the Dutch central bank governor, told Radio 1 in the Netherlands.

Carney had another calculation in hand meanwhile, a Bank of Canada forecast that "as a result of the crisis, cumulative foregone economic output from 2009 to 2012 will be 16 percent of GDP in Europe and nine percent of GDP in Canada.

"Over the longer term, we estimate that these shortfalls could grow to about 40 percent and 30 percent of respective GDP."

Canadian banks did not make many risky loans of the sort that fuelled the global crisis, but Carney noted that in an interdependent financial system, "much of the cost has been borne by countries, businesses, and individuals who did not directly contribute to the fiasco."

He concluded that "a fully risk-proofed system is neither attainable nor desirable."

"The point is not to pile up so much capital in our institutions that they are never heard from again, either as a source of instability or of growth."

Rather, the Canadian central bank chief said: "The challenge is to get the balance between resiliency and efficiency right. The Basel III agreement accomplishes these objectives."

© 2010 AFP

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