EBA published two reports that monitor the impact of the implementation of the final Basel III reforms and of the liquidity measures in EU. The EBA Basel III capital monitoring report is the latest in a regular exercise using the BCBS methodology and is not comparable to the broader Call for Advice report published in July 2019. The report includes an assessment of the impact of the full implementation (to 2027) of the Basel III package on EU banks based on data as of June 30 2018. The report on liquidity measures evaluates the implementation of liquidity coverage requirements in place in EU.
Report on Basel III monitoring. The baseline impact assessment methodology quantifies the differences in the Pillar 1 minimum required capital between the current EU implementation of the Basel standards (Capital Requirements Regulation or CRR/Capital Requirements Directive (CRD) IV) and the full Basel III implementation. Overall, EBA estimates that the Basel III reforms, once fully implemented, would determine an average increase of 19.3% in tier 1 minimum required capital of banks in EU. The impact of the risk-based reforms is 20.4%, of which the leading factors are the output floor (5.4%) and operational risk (4.7%). Compared with the current fully phased-in CRR/CRD IV rules, under Basel III full implementation the tier 1 capital shortfall increases for all banks, but particularly for global systemically important institutions. To comply with the Pillar 1 requirements in the new framework, EU banks would need EUR 26 billion of additional total capital, of which EUR 24.9 billion of tier 1 capital. The results of this exercise are based on data as of December 31, 2018.
Report on monitoring of liquidity measures. The report shows that EU banks have continued to improve their compliance with the liquidity coverage ratio (LCR). The LCR, which was fully implemented in January 2018, stood at nearly 149% on average in June 2018, well above the minimum threshold of 100%. The LCR level of global systemically important institutions stood at 145% and that of other systemically important institutions at 144%. The weighted average LCR of the remaining banks was higher at 183%. The aggregate gross shortfall amounted to EUR 15.7 billion and it is entirely attributed to four banks that monetized their liquidity buffers during times of stress. An in-depth analysis of the potential currency mismatches in LCR levels suggests that banks tend to hold significantly lower liquidity buffers in some foreign currencies, in particular USD and GBP. In some cases, LCR ratios in USD or GBP are well below 100%. The analysis of the impact of the LCR on lending does not provide clear empirical evidence of this relationship. The analysis is based on Common Reporting or COREP.
Keywords: Europe, EU, Banking, Basel III, Basel III Monitoring, Liquidity Monitoring, Regulatory Capital, Liquidity Risk, CRR/CRD, LCR, EBA
ECB published a decision allowing the euro area banks under its direct supervision to exclude certain central bank exposures from the leverage ratio.
ESAs launched a survey seeking feedback on the presentational aspects of product templates under the Sustainable Finance Disclosure Regulation (SFDR or Regulation 2019/2088).
ECB published input of the European System of Central Banks (ESCB) into the EBA feasibility report on reducing the reporting burden for banks in EU.
ECB finalized the guide on assessment methodology for the internal model method for calculating exposure to counterparty credit risk (CCR) and the advanced method for own funds requirements for credit valuation adjustment (A-CVA) risk.
EBA published an Opinion addressed to EC to raise awareness about the opportunity to clarify certain issues related to the definition of credit institution in the upcoming review of the Capital Requirements Directive and Regulation (CRD and CRR).
APRA is consulting on updates to ARS 210.0, the reporting standard that sets out requirements for provision of information on liquidity and funding of an authorized deposit-taking institution.
FED released hypothetical scenarios for a second round of stress tests for banks.
FED is proposing to temporarily revise the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes necessary to conduct stressed analysis in connection with the re-submission of capital plans, using data as of June 30, 2020.
FED adopted a proposal to extend for three years, with revision, the information collection under the market risk capital rule (FR 4201; OMB No. 7100-0314).
EBA published a voluntary online survey seeking input from credit institutions on their practices and future plans for Pillar 3 disclosures on the environmental, social, and governance (ESG) risks.