They claim these involve too much cost. But these are the rules of the game. The fact is that we at the Riksbank have spent considerable time estimating the effects of the regulations to be introduced. Next week we will publish some our estimates of the effects in our Financial Stability Report. And our calculations show – even if they, like all estimates are somewhat uncertain – that the negative effects will be fairly limited. Above all, the costs for the banks are expected to be slightly higher. It is expensive to create new systems and establish new routines to manage risks and money flows. Holding more capital means that one ties up money that could otherwise have been lent out and generated interest income. And the same applies to holding more liquid assets; there is a cost in the form of lower interest income than one would have had if the funds were instead lent out. The banks will probably pass on a small part of these costs to their customers in the form of slightly higher lending rates. But here we are talking about changes of some few tenths of a percentage point for the average customer – perhaps slightly more for households and less for companies. One can probably also expect a dampening effect on the banks’ profits, and it is fairly natural that the required rate of return for bank shares will decline as the banks become more secure. The banks may also experience increased costs for long-term funding.
When the acute phase of the crisis is over, the memory fades with the ashes and interest in crisis prevention work and regulations for crisis management soon wanes. It is better to strike while the iron is hot. The Basel Committee has achieved a difficult balancing act. Regulations are needed to prevent crises, but wrongly-constructed or overly rigid regulations can have a negative effect on the economy if they make it more expensive or difficult for households and companies to borrow. The whole reform package is not yet complete in the sense that all of the details have been worked out. But agreements have been reached on several major issues and so far we at the Riksbank consider that the proposals presented attain a reasonable balance. Part of the compromise has involved a long period of implementation for the various parts of the regulatory framework. Some parts need not be fully introduced until 2023. It is reasonable to have a transition period in which the banks can adjust. But at the same time, one may worry that it is too long in some areas. It is important that all parts of the framework are in place before new turbulence or even new crises arise in the financial system. The  BIS Review 159/2010  1  longer time that passes, the greater the risk that interest in implementing the changes will wane. But what exactly does the Basel proposal involve? What consequences will it have? How will our Swedish banks, households and companies be affected?