REGULATORY reforms proposed for banks around the globe could cut three per cent off economic growth over the next five years in the United States, Eurozone and Japan alone, and cost almost 10m jobs, top banks said yesterday.
The Institute of International Finance (IIF), a bank lobby group representing more than 400 firms, said a need to hold more capital, pay more taxes and other possible reforms could hit economic growth hard.
Gross domestic product in the three regions would fall by 0.6 percentage points annually between 2011 and 2015 and by an annual average of 0.3 percentage points in the 10 years to 2020, the IIF said in a report released at a meeting in Vienna.
“The IIF calls on the participants of the forthcoming G20 summit and the international regulatory authorities to consider carefully the content, timing and calibration of proposed bank regulatory reforms, mindful of the potential drag on economic activity that could result,” said Josef Ackermann, chief executive of Deutsche Bank and IIF chairman.
The economic impact would be hardest in the Eurozone, where GDP is projected to be 4.3 per cent lower by 2015 if reforms are implemented, compared to a base case forecast. US GDP would be curtailed by 2.6 per cent and in Japan would be restricted by 1.9 per cent, the IIF said.
Some 9.7m fewer jobs could be lost due to the reforms over the next five years, the report warned.
Banks face new taxes and requirements to hold more and better quality capital and liquidity following the worst financial crisis since the 1930s. Banks in the three key areas would need to raise $700bn (£477bn) of common equity and issue $5.4 trillion of long-term wholesale debt in the next five years to meet the expected new capital and liquidity requirements, the IIF said.
Banks say they recognise change is needed but are resisting some proposals. They are concerned about the cumulative impact of a range of measures and want more time to implement change. “The point of this report is not to argue against regulatory reform,” said Peter Sands of Standard Chartered, an IIF director.
City A.M. Reporter