The EBA will make its Basel III monitoring exercise mandatory

The European Banking Authority (EBA) published today a decision, which will change the Basel III monitoring exercise from its current voluntary nature to a mandatory exercise from December 2021. This change stems from the need to expand the sample to more jurisdictions and credit institutions, making it more representative, as well as to reach a stable sample over time by providing authorities with a sound legal basis that frames institutions’ participation. This decision will assist the EBA to represent, effectively, the interests of EU institutions in the Basel Committee on Banking Supervision (BCBS) and to provide informed opinions and technical advice to the European Commission, the European Parliament and the Council regarding the implementation of the BCBS standards into the Union law.

The initiative introduces a clear, transparent and fair methodology on how institutions should be included in the sample, and guarantees enhanced stability of the sample over time by taking into account the proportionality principle.

In addition, this decision provides competent authorities and institutions of the Member States with provisions for a reduced frequency of reporting Basel III data, i.e. annually, and for mandatory submission of only a part of the Basel templates. These provisions intend to offload some of the reporting burden that participating credit institutions might bear otherwise.

The decision applies clear selection criteria for defining the country samples. Specifically, each member state should apply, sequentially, the following criteria:

• all Global and Other Systemically Important Institutions (G-SIIs and O-SIIs) are included in the country sample at the highest level of EU consolidation, irrespective of their size;
• If 80% RWA coverage is not exceeded, and the sample is smaller than 30 banks, additional large banks (Tier 1 capital > EUR 3 billion or Total Assets > EUR 30 million), that are not O-SIIs, are included until 80% RWA coverage is exceeded;
• If 80% RWA coverage is not exceeded, additional medium-sized and small banks, that are not O-SIIs, are selected from the eligible population of three different broad business models according to predefined percentages per business model.

 Additionally, the decision intends to limit the burden on small jurisdictions, as a whole (member state’s RWA 0.5% of the total EU RWA), by limiting the participation to O-SIIs only, irrespective of whether the 80% RWA coverage is exceeded or not.

 Note to the editors

• The eligible population is the population of credit institutions per business model after excluding those whose individual RWA is below 0.1% of the member state’s total RWA;
• Broad business models are those of credit institutions that provide (a) universal services, (b) retail-oriented services, and (c) corporate-oriented and other services;
• The predefined percentages per business model are: 20% of the number of institutions that provide universal services, 2% of those providing retail-oriented services, and 20% of those providing corporate-oriented and other services.