INCREASED regulation and rules on capital ratios will force banks to raise interest rates and cut pay and dividends, the International Monetary Fund (IMF) warned in a report published yesterday.
But overall lending should not be hit, while improved bank safety should counter some of the rise in interest rates, it found.
Competitive pressures on banks is forcing them to slash costs. which will further mitigate the impact of incoming regulations.
The study forecasts average bank lending rates will rise 28 basis points (bps) in the US, 17bps in Europe and eight basis points in Japan.
However it added that this remains highly uncertain, particularly as rules on liquidity ratios “are novel and in flux”, and the impact could reach 100bps.
“By comparison, the smallest increment by which major central banks adjust their short-term policy rates is 25 bps, which tends to have a small effect on economic growth,” noted the report.