Abstract
In June 2010, the Institute of International Finance (IIF) warned that the new Basel III capital and liquidity standards would be catastrophic for the global economy. Two months later, the Macroeconomic Assessment Group (MAG) published their conclusions. Things were hardly dire. You might argue that both of these groups suffer from hopelessly irresolvable conflicts of interest. The broader consensus outside of these two groups was that, as higher capital and liquidity requirements were put into effect, they would put some drag on real activity, but the impact would be relatively small. In other words, those with less personally on the line were closer to the MAG than the IIF. Well, the jury is in, and my reading of the evidence is that the optimists were not optimistic enough. Capital requirements have gone up dramatically, and bank capital levels have gone up with them. In the meantime, lending spreads have barely moved, bank interest margins are down, and loan volumes are up.