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Basel III: Long-Term Impact on Economic Performance and Fluctuations


Paolo Angelini


Bank of Italy

Laurent Clerc


Banque de France

Vasco Curdia


Federal Reserve Bank of San Francisco

Leonardo Gambacorta


Bank for International Settlements (BIS); Bank of Italy

Andrea Gerali


Bank of Italy

Alberto Locarno


Bank of Italy

Roberto Motto


European Central Bank (ECB)

Werner Röger


European Commission, DGECFIN

Skander Van den Heuvel


Federal Reserve Board

Jan Vlček


International Monetary Fund (IMF)

February 22, 2011

Bank of Italy Occasional Paper No. 87

Abstract:     
We assess the long-term economic impact of the new regulatory standards (the Basel III reform), answering the following questions. (1) What is the impact of the reform on long-term economic performance? (2) What is the impact of the reform on economic fluctuations? (3) What is the impact of the adoption of countercyclical capital buffers on economic fluctuations? The main results are the following. (1) Each percentage point increase in the capital ratio causes a median 0.09 percent decline in the level of steady state output, relative to the baseline. The impact of the new liquidity regulation is of a similar order of magnitude, at 0.08 percent. This paper does not estimate the benefits of the new regulation in terms of reduced frequency and severity of financial crisis, analysed in Basel Committee on Banking Supervision (BCBS, 2010b). (2) The reform should dampen output volatility; the magnitude of the effect is heterogeneous across models; the median effect is modest. (3) The adoption of countercyclical capital buffers could have a more sizeable dampening effect on output volatility. These conclusions are fully consistent with those of reports by the Long-term Economic Impact group (BCBS, 2010b) and Macro Assessment Group (MAG, 2010b).

Number of Pages in PDF File: 38

Keywords: Basel III, countercyclical capital buffers, financial (in)stability, procyclicality, macroprudential

JEL Classification: E44, E61, G21

working papers series


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Date posted: May 23, 2011  

Suggested Citation

Angelini, Paolo and Clerc, Laurent and Curdia, Vasco and Gambacorta, Leonardo and Gerali, Andrea and Locarno, Alberto and Motto, Roberto and Röger, Werner and Van den Heuvel, Skander and Vlček, Jan, Basel III: Long-Term Impact on Economic Performance and Fluctuations (February 22, 2011). Bank of Italy Occasional Paper No. 87. Available at SSRN: http://ssrn.com/abstract=1849866 or http://dx.doi.org/10.2139/ssrn.1849866

Contact Information

Paolo Angelini (Contact Author)
Bank of Italy ( email )
Via Nazionale 91
Rome, 00184
Italy
Laurent Clerc
Banque de France ( email )
Paris
France
Vasco Curdia
Federal Reserve Bank of San Francisco ( email )
101 Market Street
MS 1130
San Francisco, CA 94105
United States
(415) 977-3624 (Phone)
HOME PAGE: http://www.frbsf.org/economics/economists/staff.php?vcurdia
Leonardo Gambacorta
Bank for International Settlements (BIS) ( email )
Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland
Bank of Italy ( email )
Via Nazionale 91
Rome, 00184
Italy
Andrea Gerali
Bank of Italy ( email )
Via Nazionale 91
00184 Roma
Italy
Alberto Locarno
Bank of Italy ( email )
Via Nazionale 91
Rome, 00184
Italy
Roberto Motto
European Central Bank (ECB) ( email )
Kaiserstrasse 29
Postfach 16 03 19
D-60311 Frankfurt am Main
Germany
Werner Roeger
European Commission, DGECFIN ( email )
Economic and Financial Affairs
BU1-3/159, 200 Rue de la Loi
B-1049 Brussels
Belgium
Skander Van den Heuvel
Federal Reserve Board ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
Jan Vlček
International Monetary Fund (IMF) ( email )
700 19th Street, N.W.
Washington, DC 20431
United States
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