A new regulatory package, dubbed ‘Basel IV’, may significantly increase the capital requirements of Swedish banks, on top of the already substantial measures put in place since the financial crisis. Against this background, Swedish Bankers’ Association has asked Copenhagen Economics to analyse the costs and benefits of further tightening the financial regulation in Sweden.
In terms of benefits, we find that the Swedish banking sector is so robust that further regulatory tightening would do little to reduce the risk of a new financial crisis.
In terms of costs, we estimate that ‘Basel IV’ would cause a permanent reduction in Swedish GDP of around 1%. This comes on top of the already adopted measures since the financial crises.
In addition, the proposed new regulation could increase complexity and lead to higher compliance costs and also undermine the very purpose of the regulation by pushing credit flows to less regulated parts of the financial sector.
Finally, we suggest that more targeted tools could address the emerging risks to financial stability (for example rising house prices) more effectively.
The study is commissioned by the Swedish Bankers’ AssociationDownload