The EBA publishes its regular monitoring Report on Basel III full implementation in the EU

29 September 2021

The European Banking Authority (EBA) published today its regular monitoring Report of the full implementation, in 2028, of the final Basel III reforms in the EU. According to this assessment, which is carried out using the same methodology as the one applied by the Basel Committee on Banking Supervision (BCBS), the full Basel III implementation would result in an average increase of 13.7% on the current Tier 1 minimum required capital of EU banks. To comply with the new framework, EU banks would need EUR 3.1 billion of additional Tier 1 capital. The overall impact reflects the economic impact of the Covid-19 pandemic on participating banks that materialised up to December 2020, the reference date of this Report.  

Overview of the results

Overall, the results of the Basel III capital monitoring exercise show that European banks' minimum Tier 1 capital requirement would increase by 13.7% at the full implementation date in 2028, without taking into account EU-specific adjustments. 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%).  The minimum Tier 1 capital requirement for large and internationally active banks (Group 1) would increase by 14.4%. The respective requirement for the global systemically important institutions (subset of Group 1) and that of Group 2 banks would raise by 22.7% and 8.1%, respectively.    

Change in total Tier 1 minimum required capital (MRC), as a percentage of the overall current Tier 1 MRC, due to the full implementation of Basel III (2028) (weighted averages, in %)

Bank group

Credit risk

Market risk

CVA

Op

Risk

Output floor

Other Pillar 1

Total risk-based

Revised LR

Total

SA

IRB

Securitisation

CCPs

All banks

2.3

2.8

0.0

0.0

0.2

2.2

3.8

7.1

-0.2

18.0

-4.3

13.7

Group 1

1.7

2.7

0.0

0.0

0.1

2.4

4.1

7.7

-0.2

18.4

-4.0

14.4

Of which: G-SIIs

1.9

3.8

0.0

0.0

0.1

3.0

6.1

7.4

-0.3

22.0

0.7

22.7

Group 2

6.8

3.6

0.0

0.0

0.4

0.7

1.4

2.2

0.0

15.0

-6.9

8.1

Source: EBA Quantitative Impact Study (QIS) data (December 2020), sample: 99 banks

Notes to the editors

  • The methodology applied differs from the one used in the separate Calls for Advice from the EU Commission to assess the impact of Basel reforms on EU banks and which is used as the basis for the EU Commission legislative proposals on the implementation of Basel III in the EU.
  • 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 new standards for market risk (FRTB) and credit valuation adjustments (CVA).
  • The cumulative impact analysis of the Basel III monitoring exercise report uses a total sample of 99 banks.The Basel III capital monitoring report shows the results 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.
  • For three Global Systemically Important institutions, 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. According to the “conservative estimation”, based on the original conservative assumptions, the total impact would be 13.9%, with a total risk-based impact of 19.1% and market risk impact of 1.5%.

Together with the Report, an interactive tool showing the main results is made available for analytical purposes. The official figures and conclusions are the ones presented in the public Basel III monitoring Report. Therefore, any interpretation based on the data provided within the visualisation tool must be taken with caution. 

 

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Franca Rosa Congiu

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