9 Experience suggests that costs build well into the future. In studies released last month, the Basel Committee found that the median cumulative loss of past financial crises was 63 per cent of national GDP. Given the scale of potential losses, there are clearly large benefits to reducing the frequency of crises (Chart 2).
The extensive analysis of the Basel Committee suggests that higher capital and liquidity standards would do just that. In particular, the combination of strengthened liquidity standards and a 2-percentage-point increase in bank capital ratios would raise the annual expected level of GDP by 1.8 per cent relative to trend.