Irizarry-Pérez, Gabriel

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Economic costs of compliance with Basel III: the case of Puerto Rico
(2015) Irizarry-Pérez, Gabriel; Rivera-Betancourt, Loida E.; College of Business Administration; Rivera, Roberto; Córdova, Claudio; Department of Business Administration; Ferrer, Mercedes
Financial Regulations arising from the Basel III Regulatory Framework, in response to the Global Financial Crisis, will impose important transition costs upon the economies of the countries who implement them. In this project, we assessed and contrasted the transition costs to the economies of Puerto Rico (PR) and United States (US) by simulating the main capital requirement provisions under two scenarios (i.e., Base and Regulatory), over the period 2010-2020. We built stress-test models of the respective Financial Industries and linked their outputs to multivariate models that provided macroeconomic outputs. Our findings suggest: 1. Average effects on Real Lending Rates would be slightly higher in PR by mid-simulation (161bps for PR vs. 142bps for US) and indifferent from one economy to the other by the end of the simulation period (125bps for PR vs. 124bps for US) 2. Impact on Lending Volumes would be higher in PR by mid-simulation (-10.4% for PR vs. -9.8% for US) and lower by the end (-7.8% for PR vs. -10.1% for US) 3. Impact on GDP would be lower in PR throughout the entire simulation period (-2.6% for PR vs. -4.0% for US, midway; -1.7% for PR vs. -4.2% for US, final).