Featured Product

    ECB Study Assesses Impact of Basel III Finalization Package

    July 26, 2021

    The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area. The paper applies a growth-at-risk perspective and shows that the finalization of Basel III reforms will bring about a net benefit in the medium to long term. The paper shows that reforms are expected to have a strong positive effect on the leverage ratio of banks and boost financial resilience of the banking sector through higher loss-absorbing capacity and lower bank funding costs. However, the estimates cannot anticipate the changes in the banking sector that will have taken place by 2023, the current timing of the introduction of the reform.

    Additionally, the article in the Macroprudtial Bulletin also concludes that the transitory economic costs of the plain vanilla Basel III approach are outweighed by its permanent long-run benefits. The costs of the phase-in of the plain vanilla Basel III finalization are moderate and amount to a transitory reduction of Gross Domestic Product (GDP) growth by 0.1 percentage points from the second to the fourth year after its initialization, and eventually disappear in the seventh year after the introduction of the reform. Completing the Basel III reforms will benefit long-term bank solvency and profitability. Banks will be in a better position to absorb losses in adverse economic conditions and will face lower funding costs. However, implementing EU-specific modifications to the Basel III reform, such as the small and medium-size enterprise (SME) supporting factor, credit valuation adjustment (CVA) exemptions, and discretion with regard to the operational risk capital charge reduce the already moderate transitory costs of the reform, although they also reduce its long-run benefits. Approaches that, in addition, modify the implementation of the output floor fail to further reduce the short-term economic costs of the reform while again decreasing its long-term benefits. The long-run benefits from the least binding output floor implementation (the parallel stacks approach) are negligible, amounting to only a quarter of the benefits under the plain vanilla Basel III finalization.

     

    Related Links

    Keywords: Europe, EU, Banking, Leverage Ratio, Macro-Prudential Policy, Growth at Risk, CVA, Regulatory Capital, Basel, ECB

    Featured Experts
    Related Articles
    News

    FINMA Approves Merger of Credit Suisse and UBS

    The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.

    March 21, 2023 WebPage Regulatory News
    News

    BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks

    The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.

    March 13, 2023 WebPage Regulatory News
    News

    OSFI Finalizes on Climate Risk Guideline, Issues Other Updates

    The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.

    March 12, 2023 WebPage Regulatory News
    News

    APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates

    The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.

    March 07, 2023 WebPage Regulatory News
    News

    BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending

    BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.

    March 03, 2023 WebPage Regulatory News
    News

    HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks

    The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.

    March 02, 2023 WebPage Regulatory News
    News

    MFSA Sets Out Supervisory Priorities, Issues Reporting Updates

    The Malta Financial Services Authority (MFSA) outlined its supervisory priorities for 2023

    March 02, 2023 WebPage Regulatory News
    News

    German Regulators Issue Multiple Reporting Updates for Banks

    Deutsche Bundesbank published the nationally deactivated validation rules for the German Commercial Code (HGB) users on the taxonomy 3.2, which became valid from December 31, 2022

    March 02, 2023 WebPage Regulatory News
    News

    BCBS Report Examines Impact of Basel III Framework for Banks

    The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.

    February 28, 2023 WebPage Regulatory News
    News

    PRA Consults on Prudential Rules for "Simpler-Regime" Firms

    Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.

    February 28, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8806