Assessing the Cost of Financial Regulation
IMF Working Papers, September 26, 2012
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- Assessing the Cost of Financial Regulation
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Bibliographic details
- Authors: Douglas Elliott, Andre O Santos
- Published: September 26, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475510836.001
Overview
- The study assesses the overall impact on credit of financial regulatory reforms in Europe, Japan, and the United States.
- Long-term cost estimates are provided for:
- Basel III capital and liquidity requirements
- Derivatives reforms
- Higher taxes and fees
Major findings
- Overall, average lending rates in the base case would rise by:
- 18 bps in Europe
- 8 bps in Japan
- 28 bps in the United States
- Cost estimates are lower than those of the IIF due to:
- Inclusion of expense cuts
- Reductions in the returns required by investors
Comparisons with other analyses
- Results are similar to:
- The official BIS assessments of Basel III
- An OECD analysis
- Results are markedly lower than those of the IIF.
Policy implications and interpretation
- When evaluating the cost of regulatory reforms, it is important to account for:
- Banks’ potential expense reductions
- Changes in investor required returns
- Comparing multiple assessment approaches (BIS, OECD, IIF) highlights sensitivity of cost estimates to modeling assumptions about cost offsets and investor behavior.
Source: Assessing the Cost of Financial Regulation, Douglas Elliott and Andre O Santos, September 26, 2012.