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Assessing the Cost of Financial Regulation

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  • Douglas Elliott
  • Andre O Santos

Abstract

This study assesses the overall impact on credit of the financial regulatory reforms in Europe, Japan, and the United States. Long-term cost estimates are provided for Basel III capital and liquidity requirements, derivatives reforms, and higher taxes and fees. Overall, average lending rates in the base case would rise by 18 bps in Europe, 8 bps in Japan, and 28 bps in the United States. These results are similar to the official BIS assessments of Basel III and an OECD analysis, but lower as a result of including expense cuts and reductions in the returns required by investors. As a result, they are markedly lower than those of the IIF.

Suggested Citation

  • Douglas Elliott & Andre O Santos, 2012. "Assessing the Cost of Financial Regulation," IMF Working Papers 12/233, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:12/233
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    References listed on IDEAS

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    4. Emanuel Kopp & Christian Ragacs & Stefan W. Schmitz, 2010. "The Economic Impact of Measures Aimed at Strengthening Bank Resilience – Estimates for Austria," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 20, pages 86-114.
    5. Michael R King, 2010. "Mapping capital and liquidity requirements to bank lending spreads," BIS Working Papers 324, Bank for International Settlements.
    6. Ryo Kato & Shun Kobayashi & Yumi Saita, 2010. "Calibrating the Level of Capital: The Way We See It," Bank of Japan Working Paper Series 10-E-6, Bank of Japan.
    7. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    8. Inci Ötker & Aditya Narain & Anna Ilyina & Jay Surti, 2011. "The Too-Important-to-Fail Conundrum; Impossible to Ignore and Difficult to Resolve," IMF Staff Discussion Notes 11/12, International Monetary Fund.
    9. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
    10. de-Ramon, Sebastián & Iscenko, Zanna & Osborne, Matthew & Straughan, Michael & Andrews, Peter, 2012. "Measuring the impact of prudential policy on the macroeconomy: A practical application to Basel III and other responses to the financial crisis," MPRA Paper 69423, University Library of Munich, Germany.
    11. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Fratzscher, Marcel & König, Philipp Johann & Lambert, Claudia, 2016. "Credit provision and banking stability after the Great Financial Crisis: The role of bank regulation and the quality of governance," Journal of International Money and Finance, Elsevier, vol. 66(C), pages 113-135.
    2. Cohen, Benjamin H. & Scatigna, Michela, 2016. "Banks and capital requirements: Channels of adjustment," Journal of Banking & Finance, Elsevier, vol. 69(S1), pages 56-69.
    3. repec:bla:ecorec:v:92:y:2016:i:299:p:631-647 is not listed on IDEAS
    4. repec:taf:applec:v:49:y:2017:i:8:p:823-843 is not listed on IDEAS
    5. Akram, Q. Farooq, 2014. "Macro effects of capital requirements and macroprudential policy," Economic Modelling, Elsevier, vol. 42(C), pages 77-93.
    6. Schmitt, Matthias & Schmaltz, Christian, 2016. "Potential implications of a NSFR on German banks' credit supply and profitability," Discussion Papers 37/2016, Deutsche Bundesbank.
    7. M. Birn & M. Dietsch & D. Durant, 2017. "How to reach all Basel requirements at the same time?," Débats économiques et financiers 28, Banque de France.
    8. Koray Alper & Mehmet Selman Colak & Ertan Tok, 2016. "Sermaye Kýsýtlarý ve Kredi Büyümesi : Mekanik Bir Analiz," CBT Research Notes in Economics 1618, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    9. Figuet, Jean-Marc & Humblot, Thomas & Lahet, Delphine, 2015. "Cross-border banking claims on emerging countries: The Basel III Banking Reforms in a push and pull framework," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 34(C), pages 294-310.
    10. G.Levieuge, 2015. "the coherence and the predictive content of the French Bank Lending Survey’s indicators (in French)," Working papers 567, Banque de France.
    11. repec:prg:jnlcfu:v:2017:y:2017:i:4:id:504:p:41-56 is not listed on IDEAS
    12. Grégory Levieuge, 2017. "Explaining and forecasting bank loans. Good times and crisis," Applied Economics, Taylor & Francis Journals, vol. 49(8), pages 823-843, February.
    13. Gordon Menzies & Peter Dixon & Maureen Rimmer, 2016. "In Praise of (Some) Red Tape: A New Approach to Regulation," The Economic Record, The Economic Society of Australia, vol. 92(299), pages 631-647, December.
    14. Georg Junge & Peter Kugler, 2013. "Quantifying the Impact of Higher Capital Requirements on the Swiss Economy," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 149(III), pages 313-356, September.
    15. Schmaltz, Christian & Pokutta, Sebastian & Heidorn, Thomas & Andrae, Silvio, 2014. "How to make regulators and shareholders happy under Basel III," Journal of Banking & Finance, Elsevier, vol. 46(C), pages 311-325.

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