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
Previous ArticleFINMA Revises Practices in Relation to Supervision of Fintech Firms
The European Banking Authority (EBA) launched the 2023 European Union (EU)-wide stress test, published annual reports on minimum requirement for own funds and eligible liabilities (MREL) and high earners with data as of December 2021.
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.