EBA publishes results of the Basel III monitoring exercise as of 30 June 2014

The European Banking Authority (EBA) published today its seventh report of the Basel III monitoring exercise on the European banking system. This exercise, run in parallel with the one conducted by the Basel Committee on Banking Supervision (BCBS) at a global level, allows the gathering of aggregate results on capital and liquidity ratios- including liquidity coverage ratio (LCR) and net stable funding ratio (NSFR)- and leverage ratio (LR) for banks in the European Union (EU).

The exercise monitors the impact of the transposition of the Basel III requirements on EU banks. In particular, it monitors the impact of fully-implemented Capital Requirements Directive and Regulation (CRD IV / CRR) on capital and Risk Weighted Assets (RWA), and the impact of full implementation of the Basel III framework on liquidity ratios (LCR and NSFR) and leverage ratio (LR) using data as of June 2014 under a static balance sheet assumption. Results show that the Common Equity Tier 1 capital ratio (CET1) of the largest internationally-active European banks (Group 1 banks) would be on average 10.8% compared to a ratio of 11.7% under the current implementation of the regulation. None of the Group 1 banks would face a CET1 capital shortfall to achieve the minimum requirement of 4.5%, while they would be short of EUR 2.8 billion to reach the 7.0% level (minimum CET1 of 4.5% + capital conservation buffer of 2.5%). The shortfall figure remains the same when the surcharge for global systemically important banks (G-SIBs) is considered.

For Group 1 banks, the overall impact of fully-implemented CRD IV / CRR on the CET1 ratio is mostly attributed to changes in the definition of capital and to a lesser extent to the changes related to the calculation of RWA.

As for the LCR, results show that as of June 2014, the average LCR of Group 1 banks would have been 113%. Approximately 82% of the total sample of banks would have already met the final 100% Basel III requirement to be reached by 2019. In addition, the exercise reveals a shortfall of liquid assets of EUR 115 billion for Group 1 banks.

The results for NSFR indicate that, as of June 2014, the average fully-implemented NSFR for Group 1 banks would have been 102% and 111% for Group 2 banks. The NSFR figures show that the need for more stable funding would amount to EUR 324 billion, approximately 1.3% of total assets of all banks participating in the exercise.

Finally, the average fully-implemented leverage ratio (LR) would be 3.9% for Group 1 banks, assuming the joint compliance with the 6% Tier I capital requirement. The shortfall for Group 1 banks due to the implementation of the provisions relating to LR would be EUR 2.4 billion.

Note to the editors

• A total of 148 EU banks participated in the exercise on a voluntary and confidential basis, of which 40 banks belong to Group 1 (with a Tier 1 capital exceeding EUR 3 billion and internationally active) and 108 banks belong to Group 2 (all other banks).
• Unless otherwise stated, the capital, liquidity and leverage ratios in the monitoring exercise report refer to the full implementation of the CRD IV / CRR - Basel III framework.  Moreover the current implementation of the CRD IV / CRR differs from the full implementation of the CRD IV / CRR due to a number of transitional arrangements.
• The results of this study are not comparable to industry estimates, as they do not include assumptions regarding banks' future profitability, changes in capital or balance sheet composition, nor further management actions that could be taken in response to the new Basel framework.
• The results of previous exercises in this series were published in September 2014, March 2014, September 2013, March 2013, September 2012 and April 2012.