Featured Product

    EBA Issues Second Part of Advice on Implementation of Basel III in EU

    December 04, 2019

    EBA published the second part of its advice on the implementation of Basel III in EU, which complements the report published on August 05, 2019. This work is in response to the call for advice from EC. The publication includes an impact assessment of revisions to the credit valuation adjustment (CVA) and market risk frameworks and the corresponding policy recommendations. It also provides a macro-economic impact assessment of the full Basel III package. The results are based on a sample of 189 banks from 19 EU countries.

    When accounting for the 2019 fundamental review of the trading book (FRTB) standards, the impact assessment shows that the full implementation of Basel III, under conservative assumptions, will increase the current minimum capital requirement by 23.6% on average. This impact is lower than the 24.4% originally estimated in the August 2019 report and would imply an aggregate shortfall of EUR 124.8 billion in total capital. The lower impact compared to the August 2019 Report (24.4%) is due to a reduction in the impact of market risk (2.2% compared to 2.5%) and the lower impact of the output floor (8.6%, compared to 9.1%). This reduction has been observed almost entirely among large banks. Under a scenario in which the standardized approach for CVA (SA-CVA) and basic approach for CVA (BA-CVA) capital requirements are recalibrated downward by 10%, the impact on CVA will move from 3.9% to 3.4% (reducing the total impact from 23.6% to 23.1%). Since the impact is broadly linear, a 20% reduction (the lower bound proposed by BCBS) would produce an impact of 2.9%.

    The assessment of the macroeconomic costs and benefits of the finalization of Basel III framework was carried out in cooperation with ECB. The results show that the implementation of Basel III will have net benefits for the economy in EU. EBA also put forward detailed policy recommendations in the areas of CVA and market risk: 

    • In the area of CVA risk—EBA recommends that as the CVA risk generated by the CVA exemptions can be substantial, it should be captured prudentially. This will allow alignment with international standards on CVA risk and adherence to a risk-based capital requirements framework. The use of the simplified treatment for CVA risk should be based on the proportionality framework for counterparty credit risk (CCR) already envisaged in the revised Capital Requirements Regulation (CRR) 2.; its use should be allowed to firms eligible to employ the simplified standardized approach for CCR under the CRR2.
    • In the area of market risk—EBA recommendations aim to ensure a smooth and consistent implementation of the revised market risk framework in EU and, therefore, focus on issues identified in the market risk standards, as implemented in the CRR/CRR2. The recommendations clarify the treatment for unrated covered bonds under the standardized approach for market risk under the FRTB and support the use of the recalibrated (Basel II) standardized approach as a simplified approach for institutions not subject to the FRTB reporting requirement under the CRR2.

    Overall, EBA continues to support full implementation of the final Basel III standards, which will contribute to the credibility of the banking sector in EU. These reforms will increase financial stability, while allowing the continued use of risk-sensitive approaches.

     

    Related Links

    Keywords: Europe, EU, Banking, Basel III, Impact Assessment, Basel III Finalization, Proportionality, Call for Advice, Basel III Monitoring, CVA, Market Risk, FRTB, Regulatory Capital, EC, EBA

    Featured Experts
    Related Articles
    News

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News
    News

    EP Reaches Agreement on Corporate Sustainability Reporting Directive

    The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).

    June 21, 2022 WebPage Regulatory News
    News

    PRA Consults on Model Risk Management Principles for Banks

    The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.

    June 21, 2022 WebPage Regulatory News
    News

    EC Regulation Amends Standards for Calculating Credit Risk Adjustments

    The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.

    June 21, 2022 WebPage Regulatory News
    News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News
    News

    EIOPA Issues Cyber Underwriting Proposal, Statement on Open Insurance

    The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.

    June 17, 2022 WebPage Regulatory News
    News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News
    News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News
    News

    BIS Bulletins Discuss DeFi Lending and Aspects of Crypto-Assets

    The Bank for International Settlements (BIS) published bulletins on lending in decentralized finance (DeFi) system, on blockchain scalability and fragmentation of crypto, and on extractable value and market manipulation in crypto and decentralized finance.

    June 16, 2022 WebPage Regulatory News
    News

    UK Authorities Issue Regulatory and Reporting Updates for Banks

    The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.

    June 15, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8292