The European Banking Authority (EBA) published its advice supporting a full implementation of Basel III in the EU, which includes a quantitative analysis of the estimated impact based on data from 189 banks and four policy recommendations, in response to the call for advice (CfA) from the European Commission (EC).

The impact assessment shows that the full implementation of Basel III, under conservative assumptions, will increase the minimum capital requirement (MRC) by 24.4% on average, implying an aggregate shortfall in total capital of about EUR 135.1 billion or EUR 91.1 billion in terms of common-equity tier-1 capital (CET1). However, the impact differs significantly across the sample.  For half of the banks in the sample, the impact is less than 10.6%, and it is negative for a quarter of the sample. Most of the capital impact occurs in large globally active banks, while the impact on medium-sized banks is limited to 11.3% MRC, leading to a shortfall of EUR 0.9 billion, and on small banks to 5.5% MRC with a EUR 0.1 billion shortfall. The analysis includes Pillar-2 requirements and the full set of combined buffer requirements in the calculation of banks' MRC and assumes that these requirements remain at current levels.

The policy advice covers four areas:

  1. Credit risk: all the newly agreed revisions should be implemented, maintaining a prudential framework based on external ratings and the loan-splitting approach to exposures secured by real estate. The report also recommends that no EU-specific supporting factors for small- and medium-sized enterprise (SME) and infrastructure lending exposures be retained.
  2. Securities financing transactions (SFTs): all the newly agreed revisions should be implemented, except for the minimum haircuts floor framework where EBA believes further analysis is needed.
  3. Operational risk: the new standardised approach (SA) should be implemented with a phase-in period, based on the institution-specific historical loss component for larger institutions and on a case-by-case basis for smaller institutions.
  4. Output floor: should be applied at all levels of consolidation and, where applicable, should be used to compute all capital requirements, including EU-specific requirements such as the systemic risk buffer.

The EBA will publish its advice on the implementation of the finalised market-risk (fundamental review of the trading book - FRTB) and credit-value-adjustment (CVA) frameworks and an analysis of the macroeconomic impact of the final Basel III framework later this year.

Request a demo Toggle

Request a demo

We use reCaptcha to secure our forms. This requires JavaScript enabled.

Complete all fields marked with an asterisk