The macroeconomic impact of Basel III on the Italian economy

Alberto Locarno ()

Rivista Bancaria - Minerva Bancaria, 2011, issue 5-6

Abstract: This paper provides an assessment of the costs for Italy of complying with Basel III. The main findings are the following. For each percentage point increase in the capital ratio implemented over an eight-year horizon, the level of GDP would decline by 0.00-0.33% (0.03-0.39% if credit rationing is also accounted for), corresponding to a reduction of annual output growth in the transition period of 0.00-0.04 percentage points (0.00-0.05 if credit rationing is considered as well). Compliance with the new liquidity standards causes an additional reduction of GDP growth of 0.00-0.02 percentage points. If banks felt forced to bring forward the transition to the new capital rules to 2013, the fall in output would be larger and would take place be- forehand. Long-run costs of achieving the new capital standards are even lower, slightly less than 0.2%; those needed to comply with the target liquidity ratio are of a similar size.

Keywords: Basel III; Modigliani-Miller theorem; flow/stock costs of equity finance; capital/liquidity requirements (search for similar items in EconPapers)
JEL-codes: E44 E61 G21 G38 (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (7)

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Working Paper: The macroeconomic impact of Basel III on the Italian economy (2011)
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