The BCBS released its latest Basel III monitoring report, which sets out the impact of the Basel III framework that was initially agreed in 2010 as well as the effects of the BCBS's December 2017 finalisation of the Basel III reforms and the finalisation of the market-risk framework (Fundamental Review of the Trading Book - FRTB) published in January 2019. Data as of 31 December 2018 on minimum required capital (MRC), total loss-absorbing capacity (TLAC) and Basel III's liquidity requirements are provided for a total of 181 banks, including 105 large, internationally-active, "Group-1" banks (including 29 global systemically important banks, G-SIBs) and 76 "Group-2" banks. At the same time, the EBA published two reports, on the impact of implementing the final Basel III reforms and on the implementation of liquidity coverage requirements in the EU. The capital monitoring report includes an assessment of the impact of the full implementation (as at 2027) of the Basel III package on a sample of 113 EU banks. While the BBk’s report on the same subject is based on the results of data from 32 German institutions (7 Group-1 banks and 25 Group-2 banks).
The Tier-1 MRC would increase by 3.0% following full phasing-in of the final Basel III standards relative to the initial Basel III standards (with a respective target-level capital shortfall of €23.5 billion) for the Group-1 banks. This was 5.3% at the end of June, due to the higher impact of the market-risk framework prior to the recalibration of the standard in 2019. The EBA estimates that the Basel III reforms, once fully implemented, would determine an average increase by 19.3% of EU banks' Tier-1 MRC. The impact of the risk-based reforms is 20.4%, of which the leading factors are the output floor (5.4%) and operational risk (4.7%). For German institutions, the full implementation of the final Basel III reform package will lead to an average increase of 22.2% in the MRC, down by 1.4 percentage points compared with the results from 30 June 2018. (The total capital requirement for a full implementation of the final Basel III reform package decreasing slightly from €15.5 billion to €14.0 billion.) The output floor continues to be the main driver of the increase in MRC, from 0.2% in 2022 (at a rate of 50%) to 17.6% in 2027 (at the target rate of 72.5%). Compared to the previous period, the effects of the final Basel III reform package for the German sample have decreased slightly, mainly due to the FRTB revisions. The increase in MRC for market risk will be reduced from 110% (as of 30 June 2018) to 82%; although, a direct comparison is difficult due to portfolio changes.
On an international basis, the weighted-average liquidity coverage ratio (LCR) for the Group-1 bank sample was stable at 136%, compared with 135% six months earlier. For Group-2 banks, the weighted-average LCR declined slightly from 180% to 177%. The 100% minimum requirement was met or exceeded by all but two banks in the sample. The EBA report on liquidity measures shows that EU banks have continued to improve their compliance to the 100% minimum threshold for the LCR, which came into effect in January 2018. As of 31 December 2018, the average LCR was 149%. The aggregate gross shortfall of €15.7 billion is entirely attributable to four banks that monetised their liquidity buffers during times of stress as foreseen by Article 412(1) of the CRR. However, an analysis of potential currency mismatches in LCR levels suggests that banks tend to hold significantly lower liquidity buffers in some foreign currencies; for example, LCR ratios in USD or GBP were in some cases well below 100%. According to the BBk, all German institutions in the sample had an LCR of over 100%.
Internationally, the net stable funding ratio (NSFR) for the Group-1 banks remained stable at 116%, while for Group-2 banks the average NSFR increased slightly to 120%. 94% of the Group-1 banks and 95% of the Group-2 banks reported an NSFR that met or exceeded 100%, while all banks reported an NSFR at or above 90%. The EBA reported an average NSFR of 113% and 119% for Group-1 and Group-2 banks respectively. The European NSFR shows a range of values between 80% and 155% and a shortfall remains, despite the results improving over time for the consistent sample of institutions. The German institutions still need some additional stable financing to meet the NSFR standard.