08 April 2020
The European Banking Authority (EBA) published today two Reports, which measure the impact of implementing the final Basel III reforms and monitor the current implementation of liquidity measures in the EU. Being based on June 2019 reporting date, these results do not reflect the economic impact of the coronavirus disease (Covid-19) on participating banks. Overall, the EBA estimates that the Basel III reforms, once fully implemented in 2028 after the additional delay of one year agreed by the Basel Committee, would determine an average increase by 16.1% of EU banks' Tier 1 minimum required capital. The liquidity coverage ratio (LCR) of EU banks, which was fully implemented in January 2018, stood at around 147% on average in June 2019.
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).
Overall, the results of the Basel III capital monitoring exercise, based on data as of 30 June 2019, show that European banks' minimum Tier 1 capital requirement would increase by 16.1% at the full implementation date (2028) and without taking into account EU-specific adjustments. The impact of the risk-based reforms is 20.2%, of which the leading factors are the output floor (6.5%) and operational risk (5%). The fact that the leverage ratio is currently the constraining (i.e. the highest) Tier 1 requirement for some banks in the sample but would not be as constraining under the final Basel III, explains why part of the increase in the risk-based capital metric (-4.1%) is not to be accounted for as an actual increase in the overall Tier 1 requirement. This offsetting effect (-4.1%) is attributed to the leverage ratio contribution to the total impact.
Change in total T1 MRC, as percentage of the overall current Tier 1 MRC, due to the full implementation of Basel III (2028) (weighted averages, in %)
Other Pillar 1
The semi-annual update of the EBA Report on liquidity measures, based on data prior to the Covid-19 epidemics, shows that EU banks have continued to improve their compliance with the LCR. At the reporting date of 30 June 2019, EU banks' average LCR was 147% and 78% of the banks in the sample had an LCR above 140%. The aggregate gross shortfall amounted to EUR 4.7 billion corresponding to three banks that had monetised their liquidity buffers during the financial crisis.
 For two G-SIBs that are outliers owing to overly conservative assumptions under the revised market risk framework, zero change from the revised market risk framework has been assumed for the calculation of 30 June 2019 results showing ‘reduced estimation bias’. According to the “conservative estimation”, based on the original conservative assumptions, the total impact would be 17%, with a total risk-based impact of 21.2% and market risk impact of 1.6%.