The European Banking Authority (EBA) published today two reports, which measure the impact of implementing Basel III reforms and monitor the current implementation of liquidity measures in the EU. The EBA Basel III capital monitoring report includes a preliminary assessment of the impact of the Basel reform package - as endorsed by the Group of Central Bank Governors and Heads of Supervision (GHoS) - on EU banks assuming its full implementation. The report on liquidity measures monitors and evaluates the liquidity coverage requirements currently in place in the EU. The EBA estimates that the Basel III reforms would determine an average increase by 16.7% of EU banks' Tier 1 minimum required capital. The liquidity coverage ratio (LCR) of EU banks stood at around 145% in December 2017, materially above the minimum threshold of 100%.
Basel III monitoring report
The Basel III monitoring report assesses the impact on EU banks of the final revisions of credit risk, 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), as set out in January 2016, and credit valuation adjustments (CVA).
Overall, the results of the Basel III capital monitoring, based on data as of 31 December 2017, show that European banks' minimum Tier 1 capital requirement would increase by 16.7% at the full implementation date. The impact of the risk-based reforms is 21.8%, of which the leading factors are the output floor (6.3%) and operational risk (5.7%). The leverage ratio is the constraining (i.e. the highest) Tier 1 requirement for some banks in the sample, explaining why part of the increase in the risk-based capital metric (-5.1%) is not to be accounted as an actual increase of the overall Tier 1 requirement.
Change in total Tier 1 minimum required capital, as percentage of the overall CRR/CRD IV minimum required capital, due to the full implementation of Basel III (2027), in %
Source: EBA QIS data (December 2017)
To comply with the new framework, EU banks would need EUR 24.5 billion of total capital, of which EUR 6.0 billion of additional CET1 capital.
The current report provides a preliminary, high-level, impact of final Basel III reforms. In parallel, the EBA is working on a more detailed report on the impact of the reforms in response to the European Commission's Call for Advice
. This report will be based on a larger sample and updated data.
EBA report on liquidity measures
The EBA report on liquidity measures under article 509(1) of the Capital Requirements Regulation (CRR) shows that EU banks have continued to improve their LCR. At the reporting date of 31 December 2017, EU banks' average LCR was 145% and the aggregate gross shortfall amounted to EUR 20.8 billion corresponding to four banks that monetised their liquidity buffers during times of stress. A more in-depth analysis of potential currency mismatches in LCR levels, suggests that banks tend to hold lower liquidity buffers in some foreign currencies, in particular US dollar.
Notes to the editors
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 participants.