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The macroeconomic impact of Basel III on the Italian economy

Author

Listed:
  • Alberto Locarno

    (Banca d'Italia)

Abstract
This paper provides an assessment of the costs for Italy of complying with Basel III. The main findings are the following. For each percentage point increase in the capital ratio implemented over an eight-year horizon, the level of GDP would decline by 0.00-0.33% (0.03-0.39% if credit rationing is also accounted for), corresponding to a reduction of annual output growth in the transition period of 0.00-0.04 percentage points (0.00-0.05 if credit rationing is considered as well). Compliance with the new liquidity standards causes an additional reduction of GDP growth of 0.00-0.02 percentage points. If banks felt forced to bring forward the transition to the new capital rules to 2013, the fall in output would be larger and would take place be- forehand. Long-run costs of achieving the new capital standards are even lower, slightly less than 0.2%; those needed to comply with the target liquidity ratio are of a similar size.

Suggested Citation

  • Alberto Locarno, 2011. "The macroeconomic impact of Basel III on the Italian economy," Rivista Bancaria - Minerva Bancaria, Istituto di Cultura Bancaria Francesco Parrillo, issue 5-6, november.
    • Handle: RePEc:rvs:bancar:11_5_3
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    Citations

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    Cited by:

    1. Fidrmuc, Jarko & Lind, Ronja, 2020. "Macroeconomic impact of Basel III: Evidence from a meta-analysis," Journal of Banking & Finance, Elsevier, vol. 112(C).
    2. Nobili, Andrea & Zollino, Francesco, 2017. "A structural model for the housing and credit market in Italy," Journal of Housing Economics, Elsevier, vol. 36(C), pages 73-87.
    3. Claudia Miani & Giulio Nicoletti & Alessandro Notarpietro & Massimiliano Pisani, 2012. "Banks� balance sheets and the macroeconomy in the Bank of Italy Quarterly Model," Questioni di Economia e Finanza (Occasional Papers) 135, Bank of Italy, Economic Research and International Relations Area.
    4. Eufrocinio M. Bernabe, Jr. & Jami’ah Jaffar, 2013. "Gauging the Macroeconomic Impact of Basel III on Malaysia," Staff Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number sp87, April.
    5. Sebastian Krug & Matthias Lengnick & Hans-Werner Wohltmann, 2014. "The impact of Basel III on financial (in)stability: an agent-based credit network approach," Quantitative Finance, Taylor & Francis Journals, vol. 15(12), pages 1917-1932, December.
    6. Martin Birn & Olivier de Bandt & Simon Firestone & Matías Gutiérrez Girault & Diana Hancock & Tord Krogh & Hitoshi Mio & Donald P. Morgan & Ajay Palvia & Valerio Scalone & Michael Straughan & Arzu Ulu, 2020. "The Costs and Benefits of Bank Capital—A Review of the Literature," JRFM, MDPI, vol. 13(4), pages 1-25, April.
    7. Zaroug Osman Bilal & Badreldin F. Salim, 2016. "Does Basil III Implementation Impact on Financial Performance? Evidence from Omani's Commercial Banks," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 963-970.

    More about this item

    Keywords

    Basel III; Modigliani-Miller theorem; flow/stock costs of equity finance; capital/liquidity requirements;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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