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
FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).
BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.
FCA proposed guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19, after October 31, 2020.
EBA issued an opinion on prudential treatment of the legacy instruments as the grandfathering period nears an end on December 31, 2021.
ESRB published the fifth issue of the EU Non-bank Financial Intermediation Risk Monitor 2020 (NBFI Monitor).
HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament.
APRA announced that it has increased the minimum liquidity requirement of Bendigo and Adelaide Bank for failing to comply with the prudential standard on liquidity.
PRA published the consultation paper CP17/20 to propose changes to certain rules, supervisory statements, and statements of policy to implement elements of the Capital Requirements Directive (CRD5).
US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB).
US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations.