Implementation of Basel III: Economic Impacts and Policy Challenges in the United States, Japan, and the European Union

This paper discusses economic impacts and policy challenges related to implementing Basel III, the new international standard of banking regulation, in the United States, Japan, and the European Union. The G20 leaders endorsed Basel III in late 2010 and currently national regulators are translating it into their national laws and regulations. A key issue is whether regulators can persuade their national legislatures and industries of the merits of Basel III. This paper compares and analyzes the economic cost-benefits of Basel III under the different regulatory environments of these countries, including the size of the banking sector in financial intermediation, the size of bank assets relative to GDP, additional capital that banks need to raise, the methods banks use to raise capital ratio, and cross-border bank activities.