In December 2017, the Basel committee agreed on a new regulatory framework denoted the ‘Final Basel III Framework’ including, e.g. so-called capital floors defining a minimum level of capital for different types of portfolios. Our assessment is that the proposed solution is not consistent with three key principles that the G20 provided as guidance for implementation at a global level:
In addition, the higher levels of required capital will increase the borrowing costs for European households and businesses of some 0.12-0.16 percentage points, corresponding to a price increase of 5-7%. We find this could lead to a permanent reduction in GDP of around 0.5%. In contrast, With the level of recapitalisation that EU banks have achieved since the crisis, any additional layer of capital adds only insignificant improvements to the financial stability.
The study is commissioned by the European Banking Federation and a group of European banking associations.Download