Mon. Dec 5th, 2022

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.

Note to the editors
  • The results have been visualised in a dynamic way. To facilitate the navigation, here is the full list of results for the different groups of banks that you can find in the interactive graphs.
  • The impact shown in the 1st annual mandatory exercise report is not directly comparable to the one of the previous semi-annual voluntary exercises, mainly because the sample is different but mainly because the participating banks are now subject to mandatory submission of certain parts of the data collection.
  • The Basel III Monitoring Report assesses the impact on EU banks of the final revisions of credit risk, split into four sub-categories, operational risk, and leverage ratio frameworks, as well as of the introduction of the aggregate output floor. It also quantifies the impact of the new standards for market risk (FRTB) and credit valuation adjustments (CVA).
  • The cumulative impact analysis of the Basel III monitoring exercise report uses a total sample of 160 banks, an increase by 61 banks compared to the last reference date (Dec-20).
  • The Basel III Monitoring Report shows the results separately for Group 1 and Group 2 banks. Group 1 banks are those with Tier 1 capital in excess of EUR 3 billion, and they are internationally active. All other banks are categorised as Group 2 banks.
  • The Basel III Monitoring Report shows the results separately for three broad business models, ‘universal’ which is a business model offering the vast majority of the banking services, ‘retail-oriented’, which focuses on retail clientele and ‘corporate-oriented and other which incorporates the remaining institutions.
  • Together with the Report, an interactive tool showing the main results is made available for analytical purposes. The official figures and conclusions are the ones presented in the public Basel III Monitoring Report. Therefore, any interpretation based on the data provided within the visualisation tool must be done with caution.
  • The annex showing the impact of the implementation of proposed EU specific adjustments provides an assessment of the impact of the Basel III framework including additional implementation features that are included in the EU Commission legislative proposals on the implementation of Basel III in the EU. The methodology applied in the annex differs from the one used in the EU Commission’s impact assessment.  The annex explains in detail the remaining methodological differences and provides a numerical comparison between the two assessments.
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