Basel rules to have little impact on economy -OECD

Tue Feb 15, 2011 8:00pm EST

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* Study casts doubt on claims Basel III will derail recovery

* Sees annual 0.05-0.15 pct hit to economic growth

LONDON, Feb 16 (Reuters) - Tougher global bank capital rules will barely hinder economic growth, said a study on Wednesday, casting doubt on claims from the banking sector they would result in a credit squeeze that would derail economic recovery.

The OECD, a Paris-based club of rich nations, said its study estimated Basel III rules will hit economic growth by 0.05 to 0.15 percentage point a year.

"Economic output is mainly affected by an increase in bank lending spreads as banks pass a rise in funding costs, due to higher capital requirements, to customers," the study said.

Basel III will be phased in from early 2013 and take full effect in 2019, forcing banks to hold more and better-quality capital cushions to ride market turbulence.

"The capital requirements effective as of 2019 -- 7 percent for the common equity ratio, 8.5 percent for the Tier 1 capital ratio -- could increase bank lending spreads by about 50 basis points," the study said.

The impact of the rules could be offset by a reduction, or delayed increase, in interest rates of 30 to 80 basis points, it added.

Banks warned in 2010 that Basel and other reforms could cut 3 percent off economic growth over the next five years in the U.S., euro zone and Japan, costing almost 10 million jobs.

The study lends some backing to the Basel Committee of global central bankers and regulators who authored Basel III.

The committee said last December that phasing in the rules would lead to a maximum decline in GDP of 0.22 percent, adding annual growth would be about 0.03 percentage points below its baseline level during this time.

The OECD said its growth impact is higher because the study assumes banks will be under pressure to hold discretionary buffers, not just the regulatory minimum.

(Reporting by Huw Jones, editing by David Hulmes)

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