Post-crisis banking regulation carries a cost for the Belgian economy but should lead to greater financial stability
Much financial regulation has recently been adopted, going from the Belgian banking law to the European capital requirements. PwC research suggests that the level of post-crisis banking regulation today carries a structural cost to the Belgian economy of 0,74% of GDP growth and 25,000 fewer jobs but in return should lead to more financial stability. The same research however shows that further and more stringent banking regulation could cost up to 1.5% of GDP growth to the Belgian economy as well as the loss of 81,000 jobs across the next 30 years.
Role of the banking sector in the Belgian economy
The Belgian banking sector performs a critical role in financial intermediation, by facilitating the flow of credit between lenders and borrowers, providing maturity and risk transformation, and handling payment systems. Banks also help businesses manage their risks and investments, raise capital, and facilitate efficient flows of domestic and international capital. The banking sector in Belgium generated €14.2 billion of gross value added (GVA) in 2013, which is around 4.3% of Belgian national GVA, and provides employment for around 66,000 people.
However, despite this contribution, the 2007 financial crisis clearly illustrated the risks associated with the sector. Regulatory reform remains at the top of the financial sector policy agenda, with the primary objective to ensure that the costs of excessive risk-taking are borne by banks and investors rather than taxpayers and businesses and to preserve the stability of the financial system.
Economic impact of banking regulations under two scenarios
A new PwC report, "Where next? The impact of banking regulations in Belgium", launched today, examines the economic impact of these regulations. In order to gain a sense of the magnitude of the economic impact of banking regulations, PwC economists have developed two scenarios that differ in regulatory severity and impact, with Scenario 1 specifying a set of current regulations as adopted today and with a more stringent Scenario 2.
