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    BCBS Report Examines Impact of Basel III Framework for Banks

    February 28, 2023

    The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data. The assessment shows that the initial Basel III capital ratios decreased to pre-pandemic levels in the first half of 2022 while the liquidity ratios declined but remained above the pre-pandemic levels. The accompanying dashboards now provide an interactive visualization of the results for securitization and crypto-asset exposures as well as the impact of the final Basel III framework on banks' minimum required capital.

    The report examines the impact of the Basel III framework, including the finalization of Basel III reforms published in December 2017 and the finalization of market risk framework published in January 2019. The implementation of the final Basel III minimum requirements began on January 01, 2023. The BCBS report covers data for 181 banks, including 114 large internationally active (Group 1) banks, and 66 other (Group 2) banks. Group 1 banks are the banks that have Tier 1 capital of more than EUR 3 billion and are internationally active while the remaining banks are considered Group 2 banks. The report includes a special feature on the regional distribution of Group 1 and Group 2 banks and their impact on results in the Basel III monitoring reports. the report does not reflect any additional capital requirements under Pillar 2 of the Basel III framework or any higher loss absorbency requirements for domestic systemically important banks (D-SIBs), nor does it reflect any countercyclical capital buffer requirements. The report also includes a special feature on feature on the regional distributions of Group 1 and Group 2 banks and their impact on results in the Basel III monitoring reports. Below are the key highlights of the monitoring exercise:

    • For Group 1 banks, the Tier 1 minimum required capital (MRC) would increase by 2.8%, following the full phase-in of the final Basel III standards. For Group 2 banks, the overall 2.0% decrease in Tier 1 MRC is driven by an increase in the risk-based measure of 7.9%, stemming mainly from the output floor (+5.0%) and credit risk (+2.3%), while the leverage ratio measure partially offsets this increase at –9.9%. The impact on MRC across regions varies considerably for Group 1 banks with a moderate decrease in the rest of the world (–3.9%), a small increase shown in the Americas (+1.9%) and, in contrast, a strong increase in MRC for European banks (+15.9%). The average impact of the final Basel III framework on Group 1 banks at +2.8% is 40 basis points higher than at end-2021 (+2.5%), driven by a smaller decrease in the rest of the world region.
    • The average Common Equity Tier 1, or CET1, capital ratio under the initial Basel III framework fell to 12.7% for Group 1 banks versus 13.4% at December 31, 2021. The Tier 1 capital ratios are higher in Europe than in the Americas and the rest of the world region. However, the decrease over the first half of 2022 has been particularly strong in Europe.
    • Group 1 banks registered total regulatory capital shortfalls amounting to EUR 7.8 billion, compared with EUR 0.1 billion at end-June 2020. Meanwhile, for Group 2 banks, first half of 2022 is the first reporting date that shows no CET1, additional Tier 1 or total regulatory capital shortfall at the target level. This is in line with the aggregate total capital shortfall steadily decreasing since 2018.
    • For the full sample at the end-June 2022 reporting date, the average fully phased-in final Basel III Tier 1 leverage ratios are 6.0% for Group 1 banks and G-SIBs and 5.9% for Group 2 banks. or the full sample at the end-June 2022 reporting date, the average fully phased-in final Basel III Tier 1 leverage ratios are 6.0% for Group 1 banks and G-SIBs and 5.9% for Group 2 banks. The leverage ratio fell on average across all regions, after showing some volatility during the pandemic period.
    • The weighted average liquidity coverage ratio (LCR) at end-June 2022 is 138.4% for Group 1 banks and 220.1% for Group 2 banks. Three Group 1 banks have an LCR below 100% and, hence, a shortfall (that is, the difference between high quality liquid assets and net cash outflows), which amounts to EUR 14.8 billion. Moreover, the weighted average net stable funding ratio (NSFR) was 123.5% for Group 1 banks and 132.5% for Group 2 banks at end-June 2022. All banks reported an NSFR that met or exceeded 100% while both Europe and the Americas are now roughly in line with the rest of the world, which on average reports an NSFR of 123.8%.


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    Keywords: International, Banking, Basel III Monitoring, Basel, Regulatory Capital, Liquidity Risk, Market Risk, Credit Risk, TLAC, BCBS

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