9th October 2018

EBA publishes preliminary impact of Basel reforms on EU banks’ capital and updates on liquidity measures

The European Banking Authority (EBA) has published two reports, which measure the impact of implementing Basel III reforms and monitor the current implementation of liquidity measures in the EU.

The EBA Basel III capital monitoring report includes a preliminary assessment of the impact of the Basel reform package – as endorsed by the Group of Central Bank Governors and Heads of Supervision (GHoS) – on EU banks assuming its full implementation.

The report on liquidity measures monitors and evaluates the liquidity coverage requirements currently in place in the EU. The EBA estimates that the Basel III reforms would determine an average increase by 16.7 per cent of EU banks' Tier 1 minimum required capital. The liquidity coverage ratio (LCR) of EU banks stood at around 145 per cent in December 2017, materially above the minimum threshold of 100 per cent.

The Basel III monitoring report assesses the impact on EU banks of the final revisions of credit risk, 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), as set out in January 2016, and credit valuation adjustments (CVA).

Overall, the results of the Basel III capital monitoring, based on data as of 31st December, 2017, show that European banks' minimum Tier 1 capital requirement would increase by 16.7 per cent at the full implementation date. The impact of the risk-based reforms is 21.8 per cent, of which the leading factors are the output floor (6.3 per cent) and operational risk (5.7 per cent). The leverage ratio is the constraining (ie the highest) Tier 1 requirement for some banks in the sample, explaining why part of the increase in the risk-based capital metric (-5.1 per cent) is not to be accounted as an actual increase of the overall Tier 1 requirement.

To comply with the new framework, EU banks would need EUR24.5bn of total capital, of which EUR6.0bn of additional CET1 capital.

The current report provides a preliminary, high-level, impact of final Basel III reforms. In parallel, the EBA is working on a more detailed report on the impact of the reforms in response to the European Commission's Call for Advice. This report will be based on a larger sample and updated data.