Friday, September 9, 2016
On August 10, 2016, the Global Financial Markets Association (GFMA) released a comprehensive analysis of the potential costs of the new Basel standards on lending and capital markets. The report was conducted by Oliver Wyman, a leading global management consulting firm, on behalf of GFMA and represents a comprehensive review of the existing literature on the effects of the Basel III standards on capital markets and banking activities. Given the volume and rapidity of regulatory changes in response to the financial crisis and the complexity of the global financial system, GMFA felt it was necessary to have a better understanding of the costs of reforms, both intentional and unintentional.
GFMA commissioned the study to provide some empirical background on which to base recommendations to the Basel Committee regarding ways to refine current regulations, and provide input on the direction of future reforms.
"Given the volume and rapidity of regulatory changes in response to the financial crisis, to a complex and varied global financial system necessitates a careful review. Further, there is less consensus on the need for additional reforms beyond those already completed by the end of 2015. Some observers believe it would be better to wait until these provisions have been fully implemented and their comprehensive impact on the wider economy has been assessed. There has been no comprehensive quantitative analysis to date of the impact of the full range of the Basel reforms, taken as a package, making judgments more difficult."
The report’s conclusions are drawn from a literature review of "about 100 academic papers, more than 100 letters or studies by the industry, and nearly 200 references and research papers from official sources.” Oliver Wyman restricted their examination to the effects of rules already recommended by the Basel Committee, or which are targeted for completion by the end of 2016, and the Total Loss Absorbing Capacity (TLAC) rules proposed by the Financial Stability Board. The authors also limited their analysis to the long-term effects of new regulation, excluding costs of transition or national implementation. The empirical data developed by the study revealed, among other things, that:
Based on these and the other findings in the Wyman report, GFMA recommends a period of observation and adjustment to the rules and further formulated the following high level recommendations to the Basel Committee:
The full text of the Oliver Wyman report is available at: Interaction, Coherence and Overall Calibration of Post Crisis Basel Reforms