United Kingdom (and EU regulation)

FSB final report on the evaluation of the effects of financial regulatory reforms on SME financing

On 29 November 2019, the Financial Stability Board (FSB) published a final report on the evaluation of the effects of financial regulatory reforms on small and medium-sized enterprise (SME) financing.

The FSB’s intention behind the final report is motivated by the need to better understand the effects of the reforms introduced by the G20 in response to the financial crisis. The FSB states that the most relevant reforms are the Basel III capital and liquidity requirements agreed in December 2010.

The final report’s main conclusion of the evaluation is that, for the reforms in scope, the analysis does not identify 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 the most “affected” banks (i.e. those least capitalised ex ante) relative to other banks. These effects are not homogeneous across jurisdictions and they are generally found to be temporary.

Following the introduction in section one, the rest of the final report is structured as follows:

section two provides an overview of SME definitions, importance and characteristics, as well as the overall structure, trends and drivers in SME financing;
section 3 outlines relevant reforms potentially affecting SME finance, their implementation timelines and possible transmission channels;
section 4 presents the results of the qualitative and empirical analysis on effects; and
section 5 concludes with an overall assessment of the effects on SME financing.

The final report also includes annexes with additional information on: SME definitions and financing trends (annex A); public policies to support SMEs after the crisis (annex B); financial regulations potentially affecting SME financing (annex C); a stylised example of the impact of changes in regulatory capital to the cost of bank financing for SME lending (annex D); stakeholder feedback (annex E); literature review and bibliography (annex F); and the composition of the evaluation working group (annex G). A technical appendix published together with the final report provides a detailed description of the analytical approaches, data sources and results of the empirical analysis.