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Title:BASEL III: Long-term impact on economic performance and fluctuations PDF Logo
Authors:Angelini, Paolo
Clerc, Laurent
Cúrdia, Vasco
Gambacorta, Leonardo
Gerali, Andrea
Locarno, Alberto
Motto, Roberto
Roeger, Werner
Van den Heuvel, Skander
Vlécek, Jan
Issue Date:2011
Series/Report no.:Staff Report, Federal Reserve Bank of New York 485
Abstract:We assess the long-term economic impact of the new regulatory standards (the Basel III reform), answering the following questions: 1) What is the impact of the reform on longterm economic performance? 2) What is the impact of the reform on economic fluctuations? 3) What is the impact of the adoption of countercyclical capital buffers on economic fluctuations? The main results are the following: 1) Each percentage point increase in the capital ratio causes a median 0.09 percent decline in the level of steadystate output, relative to the baseline. The impact of the new liquidity regulation is of a similar order of magnitude, at 0.08 percent. This paper does not estimate the benefits of the new regulation in terms of reduced frequency and severity of financial crisis, analyzed in Basel Committee on Banking Supervision (2010b). 2) The reform should dampen output volatility; the magnitude of the effect is heterogeneous across models; the median effect is modest. 3) The adoption of countercyclical capital buffers could have a more sizable dampening effect on output volatility. These conclusions are fully consistent with those of reports by the Long-term Economic Impact Group (Basel Committee on Banking Supervision 2010b) and the Macroeconomic Assessment Group (2010b).
Subjects:Basel III
countercyclical capital buffers
financial (in)stability
Document Type:Working Paper
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

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