Featured Product

    EBA Issues Advice on Implementation of Basel III Framework in EU

    August 05, 2019

    EBA published its advice to EC on the implementation of Basel III in EU. The advice includes a quantitative analysis of the estimated impact of Basel III based on data from 189 banks and offers a set of policy recommendations. This work is in response to the call for advice from EC. EBA welcomed improvements introduced in the final Basel III package, including the introduction of a higher degree of risk-sensitivity in the standardized approaches to measure credit and operational risks and the constraints to internal modeling by banks where undue variability of model outcomes was observed in the past. Overall, these reforms are expected to increase financial stability while allowing the continued use of risk-sensitive approaches. EBA also published letter from Olivier Guersent, Director General FISMA, regarding the call for advice on the final elements of the Basel III framework.

    The impact assessment shows that the full implementation of Basel III, under conservative assumptions, will increase the minimum capital requirement by 24.4% on an average. This increase in capital requirements will imply an aggregate shortfall in total capital of about EUR 135.1 billion (EUR 91.1 billion in terms of common equity tier 1). The majority of the capital impact occurs on large globally active banks. The impact on medium-size banks is limited to 11.3% in terms of minimum capital requirement, leading to a shortfall of EUR 0.9 billion, and the impact on small banks is limited to to 5.5% in terms of the minimum capital requirement, with a EUR 0.1 billion shortfall. EBA supports full implementation of the final Basel III standards, which will contribute to the credibility of the banking sector in EU and ensure a well-functioning global banking market. The analysis includes Pillar 2 requirements and the full set of combined buffer requirements in the calculation of banks' minimum required capital and assumes that these requirements remain at current levels.

    EBA published four policy advice reports that provide detailed policy recommendations for a number of areas of the Basel III framework, including the following:

    • In the area of credit risk—All the newly agreed revisions should be implemented in EU, maintaining a prudential framework based on external ratings and the loan-splitting approach to exposures secured by real estate. The report also recommends that no EU-specific supporting factors for small and medium-size enterprises (SME) and infrastructure lending exposures are retained.
    • In the area of securities financing transactions—All the newly agreed revisions should be implemented in EU, except for the minimum haircuts floor framework where EBA believes further analysis is needed.
    • In the area of operational risk—The new standardized approach should be implemented. The standardized approach should be based on the institution-specific historical loss component for larger institutions to maintain a risk-sensitive approach. For the same reason, smaller institutions may be allowed to also use the historical loss component on a case-by-case basis. EBA advises EC to consider a phase-in period for the standardized approach.
    • Output floor—It should be introduced and, where applicable, should be used to compute all capital requirements, including EU-specific requirements such as the systemic risk buffer. The output floor should be applied at all levels of consolidation.

    BCBS has recently made targeted revisions to the fundamental review of the trading book (FRTB) and these revisions have not been assessed in this report. In line with the request from EC, EBA will publish its advice on the implementation of the finalized FRTB and credit valuation adjustment (CVA) frameworks, along with an analysis of the macroeconomic impact of the final Basel III framework later this year. In this context, EBA acknowledges receipt of an additional request for technical advice from EC on further aspects of the final Basel III framework.

     

    Related Links

    Keywords: Europe, EU, Banking, Basel III, Impact Assessment, Basel III Finalization, Proportionality, Call for Advice, Minimum Capital Requirements, Basel III Monitoring, Recommendations, EC, EBA

    Featured Experts
    Related Articles
    News

    APRA Finalizes Reporting Standard for Operational Risk Requirements

    APRA finalized the reporting standard ARS 115.0 on capital adequacy with respect to the standardized measurement approach to operational risk for authorized deposit-taking institutions in Australia.

    March 03, 2021 WebPage Regulatory News
    News

    ECB Publishes Guide for Determining Penalties for Regulatory Breaches

    ECB published a guide that outlines the principles and methods for calculating the penalties for regulatory breaches of prudential requirements by banks.

    March 02, 2021 WebPage Regulatory News
    News

    MAS Sets Out Good Practices to Manage Operational Risks Amid COVID

    MAS and The Association of Banks in Singapore (ABS) jointly issued a paper that sets out good practices for the management of operational and other risks stemming from new work arrangements adopted by financial institutions amid the COVID-19 pandemic.

    March 02, 2021 WebPage Regulatory News
    News

    ACPR Announces New Data Collection Application for Banks and Insurers

    ACPR announced that a new data collection application, called DLPP (Datalake for Prudential), for collecting banking and insurance prudential data will go into production on April 12, 2021.

    March 02, 2021 WebPage Regulatory News
    News

    BCB Maintains CCyB at 0%, Initiates First Cycle of Regulatory Sandbox

    BCB announced that the Financial Stability Committee decided to maintain the countercyclical capital buffer (CCyB) for Brazil at 0%, at least until the end of 2021.

    March 02, 2021 WebPage Regulatory News
    News

    EBA Consults on Pillar 3 Disclosure Standards for ESG Risks Under CRR

    EBA is consulting on the implementing technical standards for Pillar 3 disclosures on environmental, social, and governance (ESG) risks, as set out in requirements under Article 449a of the Capital Requirements Regulation (CRR).

    March 01, 2021 WebPage Regulatory News
    News

    ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting

    ESAs Issue Advice on KPIs on Sustainability for Nonfinancial Reporting

    March 01, 2021 WebPage Regulatory News
    News

    EIOPA Launches Study on Non-Life Underwriting Risk in Internal Models

    EIOPA has launched a European-wide comparative study on non-life underwriting risk in internal models, also kicking-off of the data collection phase.

    March 01, 2021 WebPage Regulatory News
    News

    SRB Publishes Overview of Resolution Tools Available in Banking Union

    SRB published an overview of the resolution tools available in the Banking Union and their impact on a bank’s ability to maintain continuity of access to financial market infrastructure services in resolution.

    March 01, 2021 WebPage Regulatory News
    News

    EU Amends CRD4 and CRD5 as Part of Capital Markets Recovery Package

    EU published Directive 2021/338, which amends the Markets in Financial Instruments Directive (MiFID) II and the Capital Requirements Directives (CRD 4 and 5) to facilitate recovery from the COVID-19 crisis.

    February 26, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6650