The Basel Committee on Banking Supervision (BCBS) published the results of its latest Basel III monitoring exercise, based on December 31, 2020 data. The report sets out the impact of the Basel III framework, including the finalization of the Basel III reforms published in December 2017 and the finalization of market risk framework published in January 2019. The report includes data for 178 banks, including 111 large internationally active (Group 1) banks and 67 other (Group 2) banks.
Group 1 banks are defined as internationally active banks that have tier 1 capital of more than EUR 3 billion while all other banks are considered Group 2 banks. The coverage of the banking sector by members is very high for Group 1 banks, reaching 100% coverage for some countries, while coverage is lower for Group 2 banks and varies by country. In general, this report does not consider transitional arrangements such as grandfathering arrangements. The estimates presented generally assume full implementation of the Basel III requirements based on data as of December 31, 2020. The report includes a special feature on exemptions from the leverage ratio exposure measure due to COVID-19 pandemic, and covers both Group 1 and Group 2 banks. The following are the key highlights of the results of the Basel III monitoring exercise on banks:
- The final Basel III minimum requirements will be implemented by January 01, 2023 and fully phased in by January 01, 2028. The average impact of the fully phased-in final Basel III framework on the Tier 1 minimum required capital of Group 1 banks is +2.9%, compared to a 1.8% increase at end-December 2019. This higher impact for Group 1 banks and global systemically important banks (G-SIBs) may be partially driven by the different treatment of some outlier banks. Furthermore, measures taken by some jurisdictions during the COVID-19 pandemic that reduce current capital requirements but leave capital requirements under the fully phased-in final Basel III standard unaffected could explain parts of the observed increase of the impact.
- The capital shortfalls at the end-December 2020 reporting date are EUR 6.1 billion for Group 1 banks at the target level, in comparison with EUR 10.7 billion at end-December 2019.
- Applying the 2022 minimum total loss-absorbing capacity (TLAC) requirements and the initial Basel III framework, two of the 25 G-SIBs reporting TLAC data reported an aggregate incremental shortfall of EUR 18.4 billion.
- The weighted average liquidity coverage ratio (LCR) increased to 143% for the Group 1 bank sample and to 208% for Group 2 banks. In the current reporting period there are seven Group 1 banks with an LCR below 100%. This is a significant increase compared to end-December 2019, where only one Group 1 bank did not meet the minimum, and it is driven by banks using LCR reserves during the COVID-19 pandemic as intended by the framework. All Group 2 banks report an LCR well above the minimum requirement of 100%.
- The weighted average net stable funding ratio (NSFR) increased to 123% for the Group 1 bank sample and to 126% for the Group 2 bank sample. As of December 2020, all Group 1 banks and all but two Group 2 banks in the NSFR sample reported a ratio that met or exceeded 100%.
- For the full sample at the end-December 2020 reporting date, the average fully phased-in final Basel III tier 1 leverage ratios are 6.5% for Group 1 banks, 6.4% for G-SIBs and 5.6% for Group 2 banks. Leverage ratios are lower in Europe (5.5%) as compared to the Americas (7.0%) and the rest of the world (7.3%). Compared to end-December 2019, there was a visible uptick across all regions.
The report is accompanied by interactive Tableau dashboards that allow users to explore the results with greater ease and flexibility. In addition to the liquidity dashboards, an additional dashboard now covers the credit risk section of the report. Similar dashboards related to other sections of the report may be added at a later stage.
Keywords: International, Banking, Basel III Monitoring, Basel, Regulatory Capital, Liquidity Risk, Market Risk, Credit Risk, TLAC, COVID-19, BCBS
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