What is the effect of the Basel III agreement on GDP growth?

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The 2008 financial crisis has been blamed on the 'regulatory failure to guard against excessive risk-taking in the financial system’ (Strauss-Kahn, 2008). As a result, the Basel III agreement imposed a new set of even stricter regulatory rules on banks. However, literature shows that the Basel III requirements hamper GDP growth in the short run, while the effect on the long run GDP growth may or may not be positive. This paper therefore attempts to research the relation between GDP growth and the Basel III agreement, which is measured through the capital buffer, leverage ratio and liquidity ratio. A distinction is made between the short run effects and the long run effects. From the ordinary least squares analysis follows that GDP growth in the short term is for countries that participate in the Basel III agreement than for countries outside of the agreement. The outcomes for the long run GDP growth are not certain, since the results were ambiguous. After adjusting for differences between growth stages, the results show there is no significant effect of participating in the Basel III agreement on GDP growth in the short run, whereas in the long run there is a significant positive effect.
Faculteit der Managementwetenschappen