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
The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.
The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.
The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.
The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.
The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.