New Bank Capital Rules Could Stifle Growth, Studies Assert

Jack Ewing|The New York Times

New international regulations on how much capital banks must hold will initially make borrowing more expensive and dampen economic growth, according to two studies released Wednesday by the central bankers and regulators who are writing the new rules.

But the economic effects will be smaller than feared, and eventually stricter regulations will lead to higher growth by preventing future bank crises, the studies said.

The studies published by the Financial Stability Board and Basel Committee on Banking Supervision, whose members include central bankers and regulators from the United States, Europe, China and most other major countries, contradict assertions by the banking industry that the new regulations could throttle growth.

The estimated effects on output of the proposed rules “are significantly smaller than some comparable estimates published by banking industry groups,” said a study led by Stephen G. Cecchetti, head of the monetary and economic department of the Bank for International Settlements in Basel, Switzerland, which hosts the Basel Committee.

The study found that the impact on gross domestic product would only be about one-eighth that estimated by the Institute of International Finance, a banking industry group whose chairman is Josef Ackermann, chief executive of Deutsche Bank in Frankfurt.

“The analysis shows that the macroeconomic costs of implementing stronger standards are manageable,” Mario Draghi, president of the Bank of Italy and chairman of the Financial Stability Board, said in a statement. “The longer-term benefits to financial stability and more stable economic growth are substantial.”

Proposals made by the Basel Committee in July require banks to hold $3 in capital for every $100 they lend, and tighten requirements for the kinds of assets that qualify as capital. The rules, which leaders of the Group of 20 nations will consider when they meet in November in Seoul, also require banks to increase their holdings of liquid assets that can be easily traded to raise money.

But the rules on capital would not take full effect until 2018, leading to criticism that the central bankers are being too easy on banks. Bank stocks rose Wednesday after announcement of the new rules because of investor relief that they were not more onerous.

The studies published Wednesday, in which the International Monetary Fund also took part, said that banks could offset the cost of raising more capital by cutting costs and banker pay, further minimizing the macroeconomic impact.

Banks might also be able to raise money more cheaply if investors perceive them as being less risky.