Tokyo, Japan, October 13, 2012 — Today in Tokyo at its Annual Membership Meeting, the Institute of International Finance (IIF) published a new report, Specific Impacts of Regulatory Change on End-Users: Initial Report. The Initial Report is the first output of a Task Force set up by the IIF Board to look at ways in which financial regulatory change is currently impacting, and may in future impact, end-users of financial services.

The financial crisis has rightly led to reforms in the regulation of the financial sector, aimed at ensuring that there will be no repetition. There have been a number of studies, both from the official and private sectors, of the potential net cumulative impact of these reforms on economic growth. However, to date there has been limited comprehensive analysis of the direct and indirect effects of these changes on different classes of end-users.

The Initial Report seeks to promote the development of this latter body of work, by providing a preliminary, high-level consideration of some specific impacts of the reforms as they affect particular classes of end-users: retail customers, small and medium-sized enterprises (SMEs), emerging market borrowers, large multinational corporates, and investors. The Report does not aim to provide a full and comprehensive analysis of all the impacts – both positive and negative – and the exact way in which they will change the economic landscape, but instead provides a first picture of some matters that warrant further attention.

Releasing the Initial Report at a press conference today, Mr. Douglas Flint, Chairman of the IIF Board of Directors, and Chairman of HSBC, said: “Where we speak up is when we are concerned that aspects of the implementation of Basel III – at a time when many mature economies are struggling, and when emerging economies show signs of slowing – could have the unintended consequence of constraining future economic growth, through adverse consequences for end-users. This report provides early insights as to how regulatory reform process will impact on end-users of financial services, such as retail customers, Small and Medium-sized enterprises and investors.”

Mr. Urs Rohner, Chairman of the IIF Task Force, and Chairman of the Board of Directors of Credit Suisse, said: “Appropriate buffers and a range of other measures, to strengthen the resilience of the global financial framework, need to be constructed, in order to prevent a future difficulty from turning into a full-blown crisis. The IIF fully endorses this laudable aim. In the effort to achieve lasting stability the financial services’ industry, under the umbrella of the Institute of International Finance, is playing and will continue to play a proactive role. Thus we support the general ambition to put in place regulatory reforms, even as we express our legitimate concerns – voiced by other international bodies, such as the IMF – about the impact on future economic growth of some aspects of the proposed reforms. Even the most optimistic assessment of the net cumulative impact of these reforms acknowledges that they will have deleterious macroeconomic consequences: the only disagreement concerns their precise magnitude. Our anxieties focus particularly on the timetables for implementation, the level of international coordination, and the impact on Small and Medium-sized Enterprises.”

Three key findings emerge from the Initial Report:

• The first is that, even before the full shape and content of financial reforms have been finalized, there are already emerging observable impacts that are of concern. As overall credit growth is adversely affected, many SMEs suffer. Most large end-users are able to substitute funding from bank sources with market sources. But smaller firms who lack this market access are seeing costs increased and access reduced.
• Many reforms have yet to be finalized or implemented; thus the full impact on end-users has yet to materialize. Evidence from some banks suggests that some are currently absorbing costs from reforms already implemented, pending clarity over the remaining reforms. Once this interim period ends it seems inevitable that further costs will be passed on to end-users.
• There is therefore need for further and deeper study of these potential impacts on end-users and the IIF intends carrying out such work, and recommends that the official sector engages in similar research. On the basis of this, regulators and policy makers will be in a much better position to identify whether there are reforms which need to be phased-in more carefully to mitigate the effects on particular groups of end-users, or calibrated more effectively to be sensitive to these impacts.

Mr. Kevin Nixon, Deputy Managing Director of the IIF and Head of Regulatory Affairs, commented: “To date, there has been limited analysis of the direct and indirect effects of these regulatory changes on different classes of end-users of financial services. The report is intended by the IIF as a starting point for discussion, rather than an end of the debate. The pursuit of financial stability should complement and support other efforts to deliver economic recovery and a return to sustainable economic growth.”