An Assessment of the Long-Term Economic Impact of the New Regulatory Reform on Hong Kong

Hong Kong Monetary Authority Research Note No. 05/2010

15 Pages Posted: 27 Feb 2011

See all articles by T. C. Wong

T. C. Wong

Hong Kong Monetary Authority - Research Department

Tom Fong

Hong Kong Monetary Authority

Ka-Fai Li

Hong Kong Monetary Authority

Henry Choi

Hong Kong Monetary Authority

Date Written: November 9, 2010

Abstract

This note provides a cost-benefit analysis of the proposed regulatory reform by the Basel Committee on Banking Supervision (BCBS) for Hong Kong. Following largely the methodology of a cross-country analysis by the BCBS, the long-term benefit from the reform is assumed to be derived mainly from a lower probability of a banking crisis, while the cost is mainly reflected in a lower level of GDP because of a higher lending rate charged by banks to compensate for the cost of compliance with the new regulatory standards. Our assessment results suggest that the regulatory reform would bring a net positive long-term effect for the Hong Kong economy, largely consistent with the overall assessment for selected economies by the BCBS. However, the net benefit for Hong Kong is estimated to range from 2.11% to 2.76% (in terms of real GDP) compared with the average estimates of 4.30% to 5.85% by the BCBS, assuming that banking crises cause a permanent GDP loss. The mild impact for Hong Kong probably reflects that, with the already strong capitalisation of the Hong Kong banking sector, the marginal benefit of higher capital may be relatively mild.

Keywords: Basel, banking crisis, Hong Kong

JEL Classification: E50, E58

Suggested Citation

Wong, Tak-Chuen and Fong, Tom and Li, Ka-Fai and Choi, Henry, An Assessment of the Long-Term Economic Impact of the New Regulatory Reform on Hong Kong (November 9, 2010). Hong Kong Monetary Authority Research Note No. 05/2010. Available at SSRN: https://ssrn.com/abstract=1768642 or http://dx.doi.org/10.2139/ssrn.1768642

Tak-Chuen Wong (Contact Author)

Hong Kong Monetary Authority - Research Department ( email )

55/F, Two International Finance Centre,
8 Finance Street, Central,
Hong Kong
Hong Kong

Tom Fong

Hong Kong Monetary Authority ( email )

55/F, Two International Finance Centre, Central
Hong Kong
Hong Kong

Ka-Fai Li

Hong Kong Monetary Authority ( email )

55/F 2 IFC, 8 Finance Street
Central
Hong Kong
Hong Kong

Henry Choi

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

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