A recent report released in Basel by the Financial Stability Board (FSB) and Basel Committee on Banking Supervision (BCBS) along with the agreement of the International Monetary Fund (IMF) of the Macroeconomic Assessment Group (MAG) has said that the shift to stronger standards for global systemically important banks (G-SIBs) in advanced and emerging economies after the global financial crisis would have a good impact on the total output whereas the benefits to reduce the risk of damages from the financial crisis would be given more importance.
The report revealed that systemic financial crisis are often caused and spread due to the weaknesses at large financial institutions. The economic activities such as investment, increasing the interest rates and reducing the lending to build up capital have led to the cost of G-SIB. The shares by G-SIBs vary across jurisdictions and if these shares have been used as a scaling factor and raises the capital requirement by one percentage then it would lead to a fall in GDP to a level of 0.06 per cent which would be below its baseline followed by a recovery. This again leads to a fall in GDP by 0.01 per cent. On the whole the overall impact of Basel III and G-SIBs would lower the GDP by 0.34 per cent compared to its baseline level.