The 2007-08 financial crisis led to a global overhaul of prudential regulatory instruments. At an international level, the new Basel III regulation increased capital requirements and also introduced two liquidity ratios, for the short and long term. This Rue de la Banque provides our latest estimates of the new regulation’s long-term impact on bank lending and gross domestic product, which appears limited. It also highlights the complementarity that can arise between solvency and liquidity objectives, the degree of substitutability that can appear between the two new liquidity ratios, and the role of sovereign bonds in the new regulation.
By Olivier de Bandt, Mohammed Chahad