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Plans to strengthen banks’ capital and liquidity would erase 3.1 percent of gross domestic product in the U.S., Europe and Japan by 2015 as financial firms curb lending to businesses, according to a study by the Institute of International Finance.

The euro area would be hit the hardest and Japan the least, according to the report, released at a press conference on the IIF in Vienna today. IIF, chaired by Deutsche Bank AG Chief Executive Officer Josef Ackermann, represents more than 375 financial companies based in more than 70 countries. About 9.7 million fewer jobs would be created over the five-year period than would otherwise be the case, the report said.

The institute’s report comes as fiscal austerity measures in the euro area, spurred by the sovereign-debt crisis, threaten to tip the region back into a recession. The euro area’s economy expanded 0.2 percent in the first quarter from the fourth, when it stagnated, according to the European Union’s statistics.

“We are meeting at a crucial time for the global economy,” Ackermann said in a statement prepared for the press conference. It is “a time both of uncertainty over the course of economic recovery, and one where major economic policy and financial regulatory reforms will be at the center” of discussions by the Group of 20 leaders.

Bankers are stressing the costs of too much regulation as the Basel Committee on Banking Supervision prepares to raise the level of capital banks should hold, potentially reducing funds available to lend and to fuel growth.

G-20 Meeting

G-20 finance ministers meeting in Busan, South Korea, earlier this month reiterated a deadline of the end of this year to agree on new capital and liquidity rules with the aim of implementing them by the end of 2012. G-20 leaders are due to meet in Toronto later this month to discuss regulatory reforms as well as ways for countries to recover from the global recession.

“The analysis suggests that rapid implementation of the Basel Committee proposals would have a significant negative impact on economic growth and job creation,” Peter Sands, CEO of London-based Standard Chartered Plc. said in a statement.

IIF said the report is an interim study, and that it’s open to suggestions on how to improve the methodology of forecasting the economic impact. The group also plans to expand the impact study to other countries, it said.

Source: businessweek.com