The EBA presented the results of its Basel III implementation assessment, which includes a quantitative impact study (QIS) based on data from 189 EU banks, and a comprehensive set of policy recommendations in the area of credit and operational risk, output floor and SFTs. The EBA's full report in answer to the European Commission’s (EC’s) call for advice will be published by the end of July.
The current results show that following the full implementation of Basel III in the EU, the weighted-average minimum capital requirement (MRC) increases by 24.4%, leading to an aggregate capital shortfall of EUR 135.1 bn. The results of the QIS reflect very conservative assumptions:
1. static balance sheets, with any maturing assets replaced by similar instruments;
2. conservative reporting of underlying data by banks;
3. existing global standards without current EU exemptions;
4. inclusion of Pillar-2 and macroprudential requirements impact; and
5. calculation using the 2016 market-risk regime and not the latest standard.
The increase in MRC and the related capital shortfall however varies across banks, and the impact on capital requirements is almost entirely driven by large, globally active banks. The impact on medium-sized banks is 11.3% MRC, leading to a shortfall of EUR 0.9 bn, and on small banks to 5.5% MRC with a EUR 0.1 bn shortfall. For a quarter of the banks in the sample, MRC decreases. The total capital shortfall of EUR 135 bn would be reduced to EUR 58.7 bn if banks were to retain profits (based on 2014-18 data) throughout the transition period.