Bundesbank published results of the Basel III monitoring exercise for German banks as at December 31, 2018. The statistical annex, covering the December 2018 data collection, includes the effects of the finalized Basel III reform package, which the BCBS adopted in December 2017. The results show that when the finalized Basel III reform package has been fully implemented, the common equity tier 1 (CET1) capital ratio will fall from its current level of 14.5% to 10.7%. Additionally, the leverage ratio, on implementation of the finalized framework, will drop by 0.2 percentage points to 4.4%.
The key results of the Basel III monitoring exercise for German banks include the following:
- The total capital requirement on full implementation of the finalized Basel III reform package decreased from EUR 15.5 billion to EUR 14.0 billion compared with the previous survey as at June 30, 2018. Based on a consistent sample, this corresponds to around one-quarter of the original total capital requirement from the first survey on the reporting date of June 30, 2011.
- The aggregate minimum capital requirements show an increase of 22.2%, thus down by 1.4 percentage points from the previous period. This decline can largely be attributed to the Fundamental Review of the Trading Book (FRTB), which BCBS published in January 2019 and which has now been included in the impact studies for the first time. On the other hand, the output floor of 72.5% remains the leading factor behind the overall increase of 22.2%. Throughout its phase-in period, the output floor effect will increase from 0.2% in 2022 to 17.6% in 2027. Once fully implemented, the output floor will represent the binding capital requirement for around one-quarter of banks.
- The impact of the revisions to the credit risk framework (3.6%) is spread across the standardized approach (1.7%), the internal ratings-based approach (0.5%) and securitization (1.5%). While Group 1 banks will be affected most by the revised rules for securitization, banks in Group 2 will experience the greatest impact from the revision of the standardized approach for credit risk.
- The impact of the introduction of the FRTB will mainly affect larger trading book banks. For the first time, the impact study takes into account the re-calibrated market risk framework published in January 2019. A period-on-period comparison is made difficult by the large changes in trading book holdings, but the minimum capital requirements are set to decline from 4.6% to 3.3%. Within this sample, both Group 1 and Group 2 banks calculate over 50% of their minimum capital requirements for market risk using internal models.
- The new standards for banks’ liquidity coverage are met almost entirely across the board. On aggregate, the liquidity coverage ratio (LCR) is 148% and the net stable funding ratio (NSFR) is 112%. None of the participating banks would need additional liquidity to meet the minimum requirement for the LCR. To meet the NSFR, there is a residual need for stable funding of about EUR 7.9 billion.
In monitoring the implementation of Basel III, BCBS has been studying the impact of the capital requirements and the new liquidity standards on selected banks since 2011. Monitoring is conducted semi-annually at the end of December and the end of June. The objectives of the exercise are to monitor adaptive behaviors of banks to prepare for upcoming regulatory reforms and to assess the incidental capital shortfall of fully phased-in frameworks.
- Press Release (in German)
- Results of Basel III Monitoring Exercise (in English)
- Statistical Annex (PDF in German)
Keywords: Europe, Germany, Banking, Basel III, Basel III Monitoring, Capital Requirements, Liquidity Risk, LCR, NSFR, FRTB, Output Floor, Market Risk, Bundesbank
Next ArticleESRB Publishes Risk Dashboard in September 2019
BoE published a statistical notice (Notice 2020/9) explaining the approach for treatment of payment holidays on the profit and loss return or Form PL.
BoE updated the known issues document for the statistical reporting Forms AS and FV.
FED announced individual capital requirements for 34 large banks and these requirements go into effect on October 01, 2020.
SRB published a set of documents to give operational guidance to banks on implementation of the bail-in tool.
BIS published an update on the G20 TechSprint Initiative, which was launched in April 2020 and aims to highlight the potential for technologies to resolve regulatory compliance (regtech) and supervisory (suptech) challenges.
OSFI published a letter that provides an update on the milestones for the implementation of the IFRS 17 standard on insurance contracts.
EBA updated the report on the implementation of selected COVID-19 policies.
The Financial Stability Institute (FSI) of BIS published a brief note that examines the supervisory challenges associated with certain temporary regulatory relief measures introduced by BCBS and prudential authorities in response to the COVID-19 pandemic.
BCBS is consulting on the principles for operational resilience and the revisions to the principles for sound management of operational risk for banks.
BoE updated the reporting template for Form ER as well as the Form ER definitions, which contain guidance on the methodology to be used in calculating annualized interest rates.