Evaluation of the effects of financial regulatory reforms on small and medium-sized enterprise (SME) financing: Final report
This evaluation examines the effects of the post-crisis G20 reforms on the financing of small and medium-sized enterprise (SMEs). As part of a broader FSB examination of the effects of the reforms on financial intermediation, it is motivated by the need to better understand the effects of the reforms on the financing of real economic activity and their contribution to the G20 objective of strong, sustainable, balanced and inclusive economic growth.
Given that banks are the primary providers of external SME financing, the most relevant reforms implemented to date are the initial Basel III capital and liquidity requirements agreed in 2010. These were the focus of both qualitative and quantitative analysis. Consistent with the FSB evaluation framework, other reforms relevant for SME financing that are at an earlier implementation stage or that are national in nature were only analysed qualitatively.
For the reforms in scope, the evaluation finds no material and persistent negative effects on SME financing in general, although there is some differentiation across jurisdictions. There is some evidence that the more stringent risk-based capital requirements under Basel III slowed the pace and in some jurisdictions tightened the conditions of SME lending at those banks that were least capitalised ex ante relative to other banks. These effects are not homogeneous across jurisdictions and they are generally found to be temporary. The evaluation also provides some evidence for a reallocation of bank lending towards more creditworthy firms after the introduction of reforms, but this effect is not specific to SMEs.
SME lending growth has resumed in recent years, although volumes remain below the pre-crisis level in some jurisdictions. Access to external finance for SMEs also appears to have improved, particularly in advanced economies. Stakeholder feedback suggests that SME financing trends are largely driven by factors other than financial regulation, such as public policies and macroeconomic conditions.
Any potential costs found in this evaluation, which appear limited and transitory, should be framed against the wider financial stability benefits of the G20 reforms estimated in ex ante impact assessments. These studies generally found significant net overall benefits in terms of reducing the likelihood and severity (lost output) of financial crises.
The FSB also published today an overview of responses to its public consultation, and a Technical Appendix providing more information on the empirical analysis that was carried out as part of the evaluation.