A new regulatory package, called the Final Basel III Framework, can have significant negative effects on the real-economy. The higher levels of required capital will increase the borrowing costs for European households and businesses of some 0.12-0.16 percentage points, corresponding to a price increase of 5-7%.
We find this could lead to a permanent reduction in GDP of around 0.5%. In contrast, with the level of recapitalisation that EU banks have achieved since the crisis, any additional layer of capital adds only insignificant improvements to the financial stability.
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For further information, please contact Jonas Bjarke Jensen