Regulators say tougher bank capital and liquidity rules will have a 'modest impact' on economic growth in the short-term but could bring future benefits that far outweigh any initial decline.
The joint assessment was published by the Financial Stability Board and the Basel Committee on Banking Supervision. It found that 'the transition to stronger capital and liquidity standards is likely to have a modest impact on aggregate output'.
But the economic benefits of the proposed reforms were 'substantial', said Nout Wellink, chairman of the Basel Committee and the president of the Netherlands' central bank.
'These benefits result not only from a stronger banking system in the long run but also from greater confidence in the stability of the financial system as soon as implementation starts,' he added.
Commercial banks have been resisting the new standards planned by top central bankers and regulators, warning that they would hurt the global economy as it emerges from a global recession.
They argue that financial institutions would be forced to cut back on lending as they hoard more capital to ensure that they comply with the new rules.
The assessment found that for every one percentage point increase in banks' capital ratio, gross domestic product, or economic output, was expected to fall by 0.2%.
The impact on GDP is likely as banks would pass on the higher costs they incurred to borrowers, a move that could hurt investment. But regulators stressed that tougher rules will also bring greater stability to the economy, particularly since they help in avoiding financial crises that could lead to losses that exceed pre-crisis economic output.
In July, regulators agreed broadly on the new standards but granted banks more time than initially planned to implement the new rules.
