ECONOMIC RESEARCH

The Cumulative Impact on the Global Economy of Changes in the Financial Regulatory Framework

September 06, 2011

This Report provides a framework to evaluate the economic costs of regulatory reform. Building on the 2010 Interim Report, as well as on the considerable amount of research on the topic published over the past year, this study attempts to provide a comprehensive assessment of the potential impact of the reforms already agreed or in the process of being finalized in the G3 as well as in the UK and Switzerland. It devotes particular attention to those national-specific measures that are being considered on top of the internally agreed Basel III package.

The study suggests that the impact could total 3.2 percentage of GDP over the next five years across the five jurisdictions, implying a combined 7.5 million of jobs foregone. These estimates are highly dependent on the models used and the set of assumptions made, particularly those regarding the behavior of banks’ equity and debt investors.

The key implication of the analysis in the Report is that only well-designed, appropriately sequenced, globally-enforced regulatory reforms would be able to deliver long-run benefits to the global economy. Regulatory reform should be balanced: sufficiently rigorous to ensure a safer financial system, but without producing an over-adjustment in the financial sector that could limit the supply of credit and negatively affect the global economy.