EBA published two reports: one report examines the impact of implementing the final Basel III reforms while the other report examines the implementation of liquidity measures in EU. EBA analysis, which is based on data as of June 30, 2019 from a sample of 105 banks, shows that minimum tier 1 capital requirement of European banks would increase by 16.1% at the full implementation date (2028) and without taking into account EU-specific adjustments. Additionally, Bundesbank analysis of data from 26 German institutions shows that the minimum capital requirements for these institutions, on implementing the final Basel III reform package, are expected to increase by 26.9%, with the introduction of output floor being the biggest driver of this increase.
The Basel III monitoring report assesses the impact, on EU banks, of the final revisions of credit risk, operational risk, and leverage ratio frameworks, in addition to the introduction of the aggregate output floor. It also quantifies the impact of the new standards for market risk and credit valuation adjustments or CVA. The impact of the risk-based reforms is 20.2%, of which the leading factors are the output floor (6.5%) and operational risk (5%). The fact that leverage ratio is currently the constraining (that is, the highest) tier 1 requirement for some banks in the sample, but would not be as constraining under the final Basel III, explains why part of the increase in the risk-based capital metric (-4.1%) is not to be accounted for as an actual increase in the overall tier 1 requirement. This offsetting effect (-4.1%) is attributed to the leverage ratio contribution to the total impact. To comply with the new framework under a more realistic scenario, EU banks would need EUR 21.1 billion of additional tier 1 capital. These estimates are based on the assumption that Basel III requirements are implemented in full, relying on data prior to the COVID-19.
The semi-annual update of the report on liquidity measures shows that EU banks continued to improve their compliance with the liquidity coverage ratio (LCR). At the reporting date of June 30, 2019, EU banks' average LCR was 147%, with 78% of the sample banks having an LCR above 140%. The number of banks with a shortfall (that is, a shortfall in liquid assets to comply with the minimum requirement of 100%) decreased from seven at the end of September 2016 to three at the end of June 2019. The aggregate liquidity shortfall decreased from over EUR 26.7 billion at the end of September 2016 to EUR 4.7 billion at the end of June 2019.
- Press Release
- Report on Basel III Reforms (PDF)
- Report on Liquidity Measures (PDF)
- Bundesbank Press Release (in German)
Keywords: Europe, EU, Banking, Basel III, LCR, Basel III Monitoring, Market Risk, Liquidity Risk, Operational Risk, Credit Risk, CVA, Regulatory Capital, EBA
Previous ArticleBCBS Publishes Results of Basel III Monitoring for June 2019 Data
Next ArticleEC Consults on Renewed Sustainable Finance Strategy
BCBS amended the guidelines on sound management of risks related to money laundering and financing of terrorism (ML/FT).
US Agencies (Farm Credit Administration, FDIC, FED, FHFA, and OCC) finalized changes to the swap margin rule to facilitate implementation of prudent risk management strategies at banks and other entities with significant swap activities.
PRA published a letter that builds on the expectations set out in the supervisory statement (SS3/19) on enhancing banks' and insurers' approaches to managing the financial risks from climate change.
EBA finalized the guidelines on treatment of structural foreign-exchange (FX) positions under Article 352(2) of the Capital Requirements Regulation (CRR).
FSB published a statement on the impact of COVID-19 pandemic on global benchmark transition.
IAIS published the list of Internationally Active Insurance Groups (IAIGs) publicly disclosed by group-wide supervisors.
FED has temporarily revised the reporting form on consolidated financial statements for holding companies (FR Y-9C; OMB No. 7100-0128).
EC launched a consultation on the review of the key elements of Solvency II Directive, with the comment period ending on October 21, 2020.
ECB launched a consultation on the guide that sets out supervisory approach to consolidation projects in the banking sector.
IAIS published technical specifications, questionnaires, and templates for 2020 Insurance Capital Standard (ICS) and Aggregation Method data collections.