The Economic Impact of Measures Aimed at Strengthening Bank Resilience – Estimates for Austria

Abstract

This paper proposes a conceptual framework for analyzing the effects that proposals to strengthen the resilience of the banking sector may have on the Austrian economy. We use this framework to quantify the macroeconomic costs of the following regulatory reform measures: Requiring banks to raise the quality of the regulatory capital base, with or without requiring them to hold additional common equity buffers; introducing a global liquidity standard based on a net stable funding ratio; implementing a contingent capital regime to address the risks created by systemically important banks; abolishing implicit government guarantees for senior bank bonds; and reforming EU rules on deposit guarantee schemes. We estimate the macroeconomic costs for different scenarios on a cumulative three-year basis, comparing medium- and long-term effects on the one hand and direct effects (generated in the domestic economy) and indirect effects (including spillover effects from other euro area countries) on the other hand. The results differ significantly depending on the individual measures, but the macroeconomic costs appear to be within reasonable limits and are comparable with those established for other countries by the Basel Committee on Banking Supervision. In any case, the costs are substantially below the results published by individual banks and interest groups.

Keywords: Bank Regulation, Basel III, Impact Study, Economic Growth, Common Equity Tier 1, Capital Conservation Buffer, Contingent Capital, Bank Resolution

JEL Classification: E44, G21