Friday, October 4,
2019 / 04:09AM / By EBA / Header
Image Credit: EBA
Banking Authority (EBA) published today two reports, which monitor the impact
of implementing the final Basel III reforms and the current implementation of
liquidity measures in the EU. The EBA Basel III capital monitoring report is
the latest in a regular exercise using the methodology of the Basel Committee
of Banking Supervision and is not comparable to the broader Call for Advice
report published in July 2019.
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 30 June 2018.
The report on liquidity measures evaluates the liquidity coverage requirements
currently in place in the EU. Overall, the EBA estimates that the Basel III
reforms, once fully implemented, would determine an average increase by 19.3%
of EU banks' Tier 1 minimum required capital.
liquidity coverage ratio (LCR), which was fully implemented in January 2018,
stood at around 149% on average in June 2018, well above the minimum threshold
Basel III capital monitoring results
The results of the Basel III capital monitoring exercise, based on
data as of 30 June 2018, show that European banks' minimum Tier 1 capital
requirement would increase by 19.3% at the full implementation date (2027). 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%).
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.
in total T1 MRC, as percentage of the overall current Tier 1 MRC, due to the
full implementation of Basel III (2027) (weighted averages, in %)
Source: EBA quantitative impact
study (QIS) data (December 2018); sample: 113 banks.
EBA report on liquidity measures
The EBA report on liquidity measures shows that EU banks have
continued to improve their compliance with the liquidity coverage ratio (LCR).
In December 2018, the average LCR was 149%. The aggregate gross shortfall
amounted to EUR 15.7 billion and it is entirely attributed to four banks
that monetised their liquidity buffers during times of stress.
in-depth analysis of potential currency mismatches in LCR levels suggests that
banks tend to hold significantly lower liquidity buffers in some foreign
currencies, in particular US dollar and GBP. Insome 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 Basel III monitoring report assesses the impact on EU
banks of the final revisions of credit risk, split into four
sub-categories, operational risk, and leverage ratio frameworks, as well
as of the introduction of the aggregate output floor. It also quantifies
the impact of the credit valuation adjustments (CVA) and the new standards
for market risk (FRTB).
- The cumulative impact analysis of the Basel III monitoring
exercise report uses a total sample of 113 banks.
- The current report provides a high-level assessment of the
impact of the final Basel III reforms on Pillar 1 Tier 1 MRC and capital
- The results of the Basel III capital monitoring report are
presented separately for Group 1 and Group 2 banks. Group 1 banks are
those with Tier 1 capital in excess of EUR 3 billion and are
internationally active. All other banks are categorised as Group 2 banks.
- The analysis of the Basel III capital monitoring report
provides separate figures for the sample of global systemically important
institutions (G-SIIs). Where applicable, the analysis takes account of
G-SIIs capital buffer for the risk-based capital requirements and the
leverage ratio requirements.
- The results of the report on liquidity measures are presented
separately for G-SIIs and O-SIIs and other banks (non G-SIIs or O-SIIs).
Some figures are presented by country.
- Article 412(1) of the CRR foresees the possibility of
monetising liquid assets during times of stress (resulting in an LCR below
100%) as maintaining the LCR at 100%, under such circumstances, could
produce undue negative effects on the credit institution and other market
- LCR ratios in USD or GBP are calculated as the ratio of the
liquidity buffer and net cash outflows taking into account the positions
in USD/GBP only.
Quantitative impact study / Basel III monitoring
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