20211109_LargeModelST
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Cost and benefit assessment so far<br />
Lower credit supply and output on<br />
the transition to higher capital<br />
requirements<br />
Macroeconomic Assessment Group<br />
report (2010) An assessment of the<br />
long-term economic impact of<br />
stronger capital and liquidity<br />
requirements<br />
Lower probability of a financial crisis<br />
LEI (2010) An assessment of the longterm<br />
economic impact of stronger capital<br />
and liquidity requirements<br />
Lower credit and output losses during a<br />
financial crisis and/or economic recession<br />
(Budnik et al., 2019, The benefits and<br />
costs of adjusting bank capitalisation:<br />
evidence from euro area countries)<br />
‘Buts’:<br />
• (Unadjusted) discreet models<br />
sharply underestimate the<br />
probability of rare events<br />
(Cosslett, 1981)<br />
• Benefit estimates rely on<br />
inflated and generally<br />
regulation-invariant estimates<br />
of the costs of crisis events<br />
• How suitable for Basel III<br />
finalisation package?<br />
23<br />
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