The Glen Godlonton Real Estate Team

The longer term benefits of tougher financial regulation significantly outweigh the short-term cost of forcing lenders to hold bigger reserves, the world’s leading financial authorities conclude in two reports meant to counter the darker forecasts of the international banks that are resisting change.

Central banks and regulators accept that financial institutions will pass any increased costs from higher capital standards onto their customers, which would hamper investment for several years. But the tradeoff is the prospect of a future with fewer and less severe banking crises, an intangible that nonetheless more than offsets what likely would be a minor decline in investment.

The research was done by the Basel Committee of central banks and bank supervisors and the Financial Stability Board (FSB), which seeks to co-ordinate the work of international banking authorities. The two reports, which are scheduled for release Wednesday, were obtained by The Globe and Mail.

“The analysis shows that the macroeconomic costs of implementing stronger standards are manageable, especially with appropriate phase-in arrangements, while the longer term benefits t financial stability and more stable economic growth are substantial,” Mario Draghi, chairman of the FSB and governor of the Bank of Italy, said in a statement.

Mr. Draghi’s assessment of the impact of the stricter requirements being pushed by the Group of 20 nations clashes with the international banking industry’s own conclusions.

In June, the Institute of International Finance (IIF) released a report that found the G20’s proposals would reduce gross domestic product in the United States, the euro zone and Japan by three percentage points by 2015, a loss of output that would otherwise create 9.7 million jobs.

The bankers and the regulators use different methodologies, so it is difficult to compare the conflicting research. Around the time of the release of the IIF’s research, finance ministers and central bankers from the G20 said they would give banks more time to adjust to the regulatory changes, a shift that acknowledged the risk that weaker investment posed to the global economic recovery.

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