The Basel Committee on Banking Supervision has published a welter of rules, studies, reports and announcements over the past two days. Yesterday, it released the detailed text of the so-called Basel III standards on new capital adequacy and liquidity rules. It also published a study on the impact of the stricter capital requirements, with the headline result that the world’s largest banks will need to raise more than €600bn to meet the new minimums. (They will have until 2019 to do so, and the study didn’t take into account future profits or measures to reduce risk-weighted assets.)
Today, the committee released updated estimates on the economic impact of the shift to new capital ratios (the original report was discussed here). Based on an eight-year implementation period, the committee expects annual GDP growth to be 0.03% lower than the baseline forecast as a result of the new rules.
Somewhat lost in the paper shuffle is a bit of technical detail on the “countercyclical capital buffer”, a new feature for banking rules in many countries that will apply Basel III. When credit is growing rapidly, banks will need to set aside extra capital—up to 2.5% of assets—to guard against a potential bust. The Basel committee considers the credit-to-GDP ratio the most appropriate gauge for the buffer; a ratio of more than 2% above the long-term trend activates the extra capital, with the maximum buffer triggered by a gap of 10% or more. The report includes a fascinating series of charts that back-test the buffer, giving readers a chance to compare recent credit cycles in several countries and judge when lending growth turned frothy.