30 September 2022
The European Banking Authority (EBA) today published its first mandatory Basel III Monitoring Report which assesses the impact that Basel III full implementation will have on EU banks in 2028. According to this assessment, which uses a significantly larger sample than in previous years and applies the same methodology as the Basel Committee on Banking Supervision (BCBS), the full Basel III implementation would result in an average increase of 15.0% of the current Tier 1 minimum required capital of EU banks. To comply with the new framework, EU banks would need EUR 1.2 billion of additional Tier 1 capital. The overall impact includes the economic impact of the Covid-19 pandemic on participating banks that materialised up to December 2021, the reference date of this Report. The Report also includes a separate Annex on the impact of the EU Commission proposal for the EU implementation under the Capital Requirements Regulation (CRR3).
Overview of the results
Overall, the results of the Basel III capital monitoring exercise show that European banks' minimum Tier 1 capital requirement would increase by 15.0% at the full implementation date in 2028, without taking into consideration EU-specific adjustments. Excluding the leverage ratio contribution, the impact of the reforms is 18.2%, of which the leading factors are the output floor (6.3%) and credit risk (4.4%). The minimum Tier 1 capital requirement for large and internationally active banks (Group 1) would increase by 16.0%. The respective requirement for the global systemically important institutions (G-SIIs, subset of Group 1) and that of Group 2 banks would increase by 24.7% and 9.6%, respectively.
Looking at a sample of 86 banks which have consistently reported data over the past three years, the impact has slightly increased since December 2020. This is mainly due to more widespread reporting by banks of increased market risk impact in the latest data collection. However, when comparing the figures from this report to the pre-COVID-19 levels measured at December 2019, the impact continues its declining trend that has been in place since 2018.
DOCUMENTS
EBA Report on Basel III Monitoring (data as of December 2021)
Annex – analysis of EU specific adjustments
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