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The transition to stronger capital and liquidity standards is likely to have a modest impact on aggregate output, the Financial Stability Board and Basel Committee on Banking Supervision said on Wednesday.
The Basel Committee's assessment of the long-term economic impact found clear net long term economic benefits from increasing the minimum capital and liquidity requirements from their current levels.
The group estimates that for each percentage point increase in bank's actual ratio of tangible common equity to risk-weighted assets over four years will lead to a decline in the level of GDP by about 0.20%.
In terms of growth rates, this means that the annual growth rate would be reduced by an average of 0.04 percentage points over a four and a half year period, with a range of results around these point estimates, the report showed.
Further, the report said a 25% increase in liquid asset holdings is found to have an output effect less than half that associated with a one-percentage point increase in capital ratios. A two-year implementation period leads to a slightly larger reduction from the baseline path.
The Institute of International Finance said in June that proposed rules will reduce economic growth by around 3% over the coming five years in the U.S., Eurozone and Japan.
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