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

    BIS Bulletin Examines Cognitive Limits of Large Language Models

    The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.

    January 25, 2024 WebPage Regulatory News
    News

    ECB is Conducting First Cyber Risk Stress Test for Banks

    As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.

    January 24, 2024 WebPage Regulatory News
    News

    EBA Continues Momentum Toward Strengthening Prudential Rules for Banks

    A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.

    January 24, 2024 WebPage Regulatory News
    News

    EU and UK Agencies Issue Updates on Final Basel III Rules

    The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards

    December 19, 2023 WebPage Regulatory News
    News

    Industry Agency Expects Considerable Uptake for Swiss Climate Scores

    The Swiss Federal Council recently decided to further develop the Swiss Climate Scores, which it had first launched in June 2022.

    December 18, 2023 WebPage Regulatory News
    News

    BCBS Consults on Disclosure of Climate Risks, Issues Other Updates

    The Basel Committee on Banking Supervision (BCBS) launched consultation on a Pillar 3 disclosure framework for climate-related financial risks, with the comment period ending on February 29, 2024.

    December 18, 2023 WebPage Regulatory News
    News

    US Government Moves to Regulate Development and Use of AI Models

    The U.S. President Joe Biden signed an Executive Order, dated October 30, 2023, to ensure safe, secure, and trustworthy development and use of artificial intelligence (AI).

    December 18, 2023 WebPage Regulatory News
    News

    MAS Launches Gprnt Digital Platform for ESG Reporting for SMEs

    The Monetary Authority of Singapore (MAS) launched an integrated digital platform, Gprnt, also known as “Greenprint.”

    November 29, 2023 WebPage Regulatory News
    News

    EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis

    The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.

    November 28, 2023 WebPage Regulatory News
    News

    NGFS Publishes Phase IV Long-term Climate Scenarios for Banks

    The Network for Greening the Financial System (NGFS) published its latest set of long-term climate macro-financial scenarios (Phase IV) for assessing forward-looking climate risks.

    November 28, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8947