Featured Product

    EBA Report Assesses Impact of Implementation of Basel III Reforms

    September 29, 2021

    The European Banking Authority (EBA) published a report that assesses the impact of the full implementation of the final Basel III reforms on banks in EU. The report assesses, among others, the impact of the final revisions of credit risk (split into four sub-categories), operational risk, leverage ratio frameworks, and the introduction of the aggregate output floor. It also quantifies the impact of the new standards for market risk (FRTB) and credit valuation adjustments (CVA). The report is accompanied by an interactive tool that shows the key findings of this monitoring exercise. The analysis shows that full Basel III implementation in 2028 would result in an average increase of 13.7% on the current tier 1 minimum required capital of banks in European Union.

    The cumulative impact analysis of the report uses a sample of 99 banks, including 40 Group 1 and 59 Group 2 banks. Group 1 banks are banks that have tier 1 capital in excess of EUR 3 billion and are internationally active. All other banks are categorized as Group 2 banks. The Basel III capital monitoring report shows the results separately for Group 1 and Group 2 banks. The present report shows the evolution of the common equity tier 1 (CET1), tier 1, and additional tier 1 minimum required capital impact as well as the associated capital shortfalls. The overall impact reflects the economic impact of the COVID-19 pandemic on participating banks that materialized up to December 2020, the reference date of this report. The following are the key findings of the Basel III monitoring exercise:

    • Compared with the current fully phased-in Capital Requirements Regulation and Directive (CRR/CRD IV) rules, under Basel III, full implementation of the tier 1 capital shortfall increases for all banks, but particularly for global systemically important institutions.
    • When considering the entire sample of banks, the risk-based capital ratios, namely the CET1, tier 1 and total capital ratios, decline by 260, 280 and 320 basis points, respectively, following the implementation of the reform.
    • Excluding the leverage ratio contribution, the impact of the reforms is 18%, of which the leading factors are the output floor (7.1%) and credit risk (5.1%).
    • In December 2020, European Union banks required additional stable funding of EUR 8.1 billion to fulfil the minimum net stable funding ratio (NSFR) requirement of 100%. Taking a longer-term perspective, for the constant sample of banks over time, it can be observed that compliance with the NSFR has steadily improved since the start of the monitoring exercise in June 2011.
    • For three G-SIIs, which are considered outliers owing to overly conservative assumptions under the revised market risk framework, the results showing reduced estimation bias assume zero change between the current and the revised market risk framework.

    The methodology applied in this report differs from the methodology used by EBA in the separate Calls for Advice from the European Commission to assess the impact of Basel reforms on banks and from the methodology that is used as the basis for European Commission's legislative proposals on the implementation of Basel III in the European Union.

     

    Related Links

    Keywords: Europe, EU, Banking, Basel, Basel III Monitoring, Credit Risk, Operational Risk, CRR, Regulatory Capital, G-SII, Market Risk, Liquidity Risk, FRTB, CRD IV, EC, EBA

    Featured Experts
    Related Articles
    News

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News
    News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News
    News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News
    News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News
    News

    UK Authorities Issue Regulatory and Reporting Updates for Banks

    The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.

    June 15, 2022 WebPage Regulatory News
    News

    BaFin Consults on Resolvability Requirements for Resolution Planning

    The Federal Financial Supervisory Authority of Germany (BaFin) proposed to amend the “Capital Investment Conduct And Organization Ordinance” and issued a draft circular on the minimum resolvability requirements for resolution planning.

    June 10, 2022 WebPage Regulatory News
    News

    EBA Consults on Certain Standards and Guidelines Under CRR and BRRD

    The European Banking Authority (EBA) proposed guidelines, for the resolution authorities, on the publication of the write-down and conversion and bail-in exchange mechanic, with the comment period ending on September 07, 2022.

    June 08, 2022 WebPage Regulatory News
    News

    OJK Publishes Regulatory Updates for Financial Sector Entities

    The Financial Services Authority of Indonesia (OJK) is strengthening cooperation with the Australian Prudential Regulation Authority (APRA) and the Japanese Financial Services Agency (JFSA)

    June 03, 2022 WebPage Regulatory News
    News

    EU Publishes Rules on DLT and Data Governance

    The European Parliament and the Council published Regulation 2022/868 on European data governance (Data Governance Act).

    June 03, 2022 WebPage Regulatory News
    News

    EBA Publishes Phase 2 of Reporting Framework 3.2

    The European Banking Authority (EBA) published phase 2 of its reporting framework 3.2. The technical package supports the implementation of the updated reporting framework by providing standard specifications

    June 03, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8267