EBA published two reports measuring the impact of implementing the final Basel III reforms and monitoring the implementation of liquidity measures in EU. The EBA Basel III capital monitoring report includes a preliminary assessment of the impact of the Basel reform package on EU banks, assuming its full implementation. The report on liquidity measures monitors and evaluates the liquidity coverage requirements in place in EU.
The Basel III monitoring report assesses the impact on EU banks of the final revisions of credit risk (split into four sub-categories), operational risk, and leverage ratio frameworks, as well as of the introduction of the aggregate output floor. It also quantifies the impact of the new standards for market risk and credit valuation adjustments (CVA). Overall, the results of the Basel III capital monitoring exercise, which is based on data as of June 30, 2018, show that European banks' minimum tier 1 capital requirement would increase by 19.1% at the full implementation date (2027). The impact of the risk-based reforms is 25.4%, of which the leading factors are the output floor (8.0%) and operational risk (5.5%). Leverage ratio is the constraining (that is, the highest) tier 1 requirement for some banks in the sample but will not be as constraining under the final Basel III, explains why part of the increase in the risk-based capital metric (-6.2%) is not to be accounted for as an actual increase in the overall tier 1 requirement. This offsetting effect (-6.2%) is attributed to the leverage ratio contribution to the total impact. To comply with the new framework, EU banks would need EUR 39.0 billion of additional total capital, of which EUR 24.2 billion is tier 1 capital.
Additionally, the liquidity coverage ratio (LCR) of EU banks, which was fully implemented in January 2018, stood at nearly 146% on average in June 2018, which is materially above the minimum threshold of 100%. However, some individual institutions reported shortfalls in the overall LCR. In parallel to this exercise, EBA is working on a more detailed report on the impact of the reforms. This report will be based on data of the same reference date (June 2018) but on an expanded sample of banks. The latter report will also cover the Pillar II requirements instead of only Pillar I requirements, as in the current report.
Keywords: Europe, EU, Banking, Basel III, Basel III Monitoring, Liquidity Risk, LCR, Regulatory Capital, EBA
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