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

    BSP Tackles Aspects of Lending and Islamic, Open & Sustainable Finance

    The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance.

    January 16, 2022 WebPage Regulatory News
    News

    US Agencies Issue Regulatory Updates, FDIC Launches Tech Sprint

    The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.

    January 13, 2022 WebPage Regulatory News
    News

    EBA Issues Guide on Bank Resolvability, Consults on Transferability

    The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).

    January 13, 2022 WebPage Regulatory News
    News

    MFSA Publishes CRD5 Updates and Supervisory Priorities for 2022

    The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0.

    January 13, 2022 WebPage Regulatory News
    News

    HKMA Extends Repayment for Trade Facilities, Consults on Crypto-Assets

    The Hong Kong Monetary Authority (HKMA) published a circular, along with the reporting form and instructions, for self-assessment, by authorized institutions, of compliance with the Code of Banking Practice 2021.

    January 12, 2022 WebPage Regulatory News
    News

    FCA Registers Securitization Repositories; PRA Issues 2022 Priorities

    The Financial Conduct Authority (FCA) decided to register European DataWarehouse Ltd and SecRep Limited as securitization repositories under the UK Securitization Regulation, with effect from January 17, 2022.

    January 12, 2022 WebPage Regulatory News
    News

    EC Regulation Sets Out Methods for Measuring K-Factors Under IFR

    The European Commission (EC) published the Delegated Regulation 2022/25, which supplements the Investment Firms Regulation (IFR or Regulation 2019/2033) with respect to the regulatory technical standards specifying the methods for measuring the K-factors referred to in Article 15 of the IFR.

    January 11, 2022 WebPage Regulatory News
    News

    BIS Studies How Platform Models Impact Financial Stability & Inclusion

    The Bank of International Settlements (BIS) published a paper that assesses the ways in which platform-based business models can affect financial inclusion, competition, financial stability and consumer protection.

    January 10, 2022 WebPage Regulatory News
    News

    CBE Issues Additional Measures to Ease Disruptions from Pandemic

    The Central Bank of Egypt (CBE) published a circular with instructions on emergency liquidity assistance to banks that are unable to meet their liquidity requirements.

    January 10, 2022 WebPage Regulatory News
    News

    ESAs Publish List of Financial Conglomerates for 2021

    The European Supervisory Authorities (ESAs) published the list of identified financial conglomerates for 2021.

    January 07, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 7868