New capital requirements for banks could undermine economic growth, according to a leading economist.

George Lagarias, chief economist at professional services firm Mazars, said the Basel III capital requirements currently being implemented could hamper the ability of banks to lend.

“If we tell them [banks] they should do less, which is what the new Basel capital requirements ask them to do, that means they’re going to create less credit, which means that growth is going to be more lacklustre.

“As a society, I think we haven’t had a proper conversation about what type of capitalism we want. Do we want a low growth capitalism which, as we have seen, does not help income inequality much … or, you accept higher peaks and deeper troughs that are concomitant with capitalism and, occasionally, we might have to give some money to banks to stay afloat.”

Wave of new regulation

Lagarias was speaking on Board Agenda’s The Macro Memo podcast as part of discussion on a wave of new regulation hitting companies around the world which includes, in addition to Basel III, new cyber security rules and new EU sustainability reporting responsibilities.

Mark Kennedy, a partner at Mazars and fellow guest on the podcast, said there are other factors influencing banks.

“One is the availability of other funding,” says Kennedy, “which is a direct consequence of what happened in 2008 [the financial crisis], or you’ve seen shadow banking or PE (private equity) take much larger chunks of the economy.

“And sustainability directives, particularly in Europe, are going to create a different landscape in terms of the ability of certain companies to borrow. These are longer term trends.”

The European legislation includes the Corporate Sustainability Due Diligence Directive (asking companies to report on human rights and the environment in their supply chains) and the Corporate Sustainability Reporting Directive (more extensive non-financial reporting).

London listings

Another macro issue covered by the podcast is London listings. The London Stock Exchange (LSE) has seen a decreasing number of big companies listing in London. Many are choosing to IPO elsewhere including New York, among others.

George Lagarias said the choice of market comes down to the stock prices that can be achieved, a factor currently drawing flotations to the US, including ARM, a tech company that had once been on the LSE. “You want to go ideally to the deepest and biggest market. And industry matters. If you’re in tech than maybe you want to be more in the US. There isn’t much technology investing in Europe,” Lagarias added.

The Paris Olympics was also on the podcast agenda, with the discussion addressing whether the games really offer business and economic opportunities. Mark Kennedy noted that few Olympics actually end up making a return.

“It’s accepted now you’re making long-term infrastructure investments and you’re not necessarily going to get a return in the year of the Olympics, or even shortly afterward.”

Reflecting on Paris, he observed: “The expectation is it will not be a money generator…the costs are so high that really you’re doing a showcase.”

The discussion was part of Board Agenda’s podcast series, The Macro Memo, the global trends briefing for boards and directors, in partnership with Mazars.

Listen to the full podcast here.