BIS says bank buffer worth economic hit

THE BENEFITS for taxpayers of a safer financial system will far outweigh the temporary hit to economic growth of imposing tough new capital rules on top banks, a committee of international regulators concluded yesterday.

The report, published yesterday by the Bank for International Settlements in Basel, claimed that increasing the extra capital banks are required to hold by one percentage point over eight years would cut economic growth by less than 0.01 per cent per year during the phase-in period.

Extra capital buffers are “likely to have at most a modest impact on aggregate output, while the benefits from reducing the risk of damaging financial crises will be substantial”, the Basel Committee and the Financial Stability Board said in a statement.

Both bodies have approved the bank capital surcharge plan that leaders of the world’s top 20 economies (G20) are set to endorse in November.

Banking industry bodies, however, warn that piling capital requirements on lenders will cut their ability to aid economic growth.

Under new rules, a surcharge of one to 2.5 per cent -- the amount depending on five factors like complexity and international reach -- will be introduced from 2016 over three years.