Capital rules will not stifle banks: BIS

City A.M. Reporter
NEW bank capital rules would likely not hit growth and banks are exaggerating their potential effects, an economist at the Bank for International Settlements (BIS) said.

“The net impact of the Basel committee reforms on growth will be negligible,” said Stephen Cecchetti, chief economic adviser to the BIS.

“Our preliminary assessment is that improvements to the resilience of the financial system will not permanently affect growth -- except for possibly making it higher,” he said.

Under proposed new rules -- so called Basel III -- banks would be required to hold more capital. The Basel Committee on Banking Supervision put forward a package of Basel III reforms in 2009 and aims to finalise it by this November’s G20 summit.

Most banks already hold more capital than under the existing Basel II accord, which the United States has yet to adopt fully.

Leading banks are meeting in Vienna this week and will publish estimates on the impact of Basel III.

“(Banks) are assuming they’re not adjusting their business at all to the regulatory reforms and that the result for the economy will be the worst possible,” said Cecchetti.

Cecchetti said banks would not have to swap large amounts of high-yielding loans for government bonds but could instead lengthen the duration of the maturities on liabilities to bring them closer in line with those of their assets.