If we look at the costs and benefits of the Basel III reforms to increase capital at financial institutions, we see that reforms impose costs on banks which may in part be passed on to their customers through wider spreads between deposit and lending rates – in turn generating some broader macroeconomic effects.
Third, we need to ensure that the regulatory framework effectively captures all systemically important financial institutions, and that moral hazard problems related to them are fully addressed. In the European Union, the enhancements to the Capital Requirements Directive should be swiftly adopted and an agreement on the Directive on Alternative Investment Fund Managers be promptly reached.