Results of the Basel III impact study for German institutions as at 31 December 2012

  • On average, the 42 participating German institutions have achieved the target core tier 1 capital ratio as defined in Basel III of 7%. This is predicated on full implementation of Basel III without taking the transitional provisions into account.
  • The seven large institutions have achieved the target ratio of 7% on average for the first time. The other smaller banks were already well above the minimum, at 8.9% on average.
  • The capital requirement of the seven large German banks has fallen considerably (by €16 billion) compared with the level reported at the end of June 2012. Institutions which do not yet meet the 7% target rate (plus a capital buffer in the case of global systemically important institutions, or G-SIIs) need to come up with another €14 billion by the end of 2021.
  • The liquidity coverage ratio (LCR) averaged 99.3% for large banks and 114.9% for smaller institutions. On the whole, €35 billion worth of liquid assets are still required.

Since the beginning of 2011, the Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have been observing and analysing the impact of the stricter international capital rules and the new liquidity standards (Basel III) in semi-annual “Basel III monitoring exercises”. Throughout Europe, a total of 170 banks from 18 EU member states are involved. 42 German institutions were included in the analyses, divided into two groups. Group 1 contains seven internationally active institutions with tier 1 capital of at least €3 billion under the CRD III Implementation Act. Group 2 contains the other 35 smaller institutions.

The analyses conducted are based on the assumption of full implementation of Basel III as of 31 December 2012. This means that the transitional provisions such as the gradual phasing-in of capital deductions up to 2018 or grandfathering provisions lasting until 2021 are not taken into account. The gradual introduction of the new capital rules by 31 December 2021 is intended to provide institutions with sufficient time to cover the rest of their capital needs. This process will be monitored and followed closely by the supervisory authorities.

The current study has shown that the core tier 1 capital ratio as defined under Basel III averaged 7% for Group 1 banks and 8.9% for Group 2 institutions.

This means that, for the first time, the Group 1 institutions have achieved, on average, the required target ratio of 7%, which is composed of the minimum common equity tier 1 ratio of 4.5% and a capital conservation buffer of 2.5%.

Under the above assumptions, Group 1 institutions would have needed to raise an additional €14 billion in capital (without taking any other factors into account) in order to fulfil the target ratio of 7% of core tier 1 capital in addition to an add-on of between 1% and 2.5% for global systemically important institutions (G-SIIs) by 31 December 2012. The large institutions’ need for core tier 1 capital has thus fallen by €16 billion from June 2012.

The main reason for the drop in the capital requirement is that institutions have increased their capital and scaled back their risk-weighted assets (RWA). The latter is due primarily to a reduction in positions with high risk weights (securitisations) and positions only recorded as risk positions on account of Basel III (such as risks from credit valuation adjustments (CVAs)). No reduction in institutions’ overall portfolio exposure has been noted.

As at 31 December 2012, Group 1 institutions had an average liquidity coverage ratio (LCR) of 99.3%, thereby nearly reaching the target ratio. At an average ratio of 114.9%, Group 2 institutions are already above the 100% minimum requirement which will enter into force in 2019. All in all, the German institutions participating in the study will need to raise another €35 billion in liquid assets to achieve a ratio of 100%.

Since June 2011, the ratio has gone up by an average of nearly 30 percentage points for Group 1 and 40 percentage points for Group 2. This rise is due in part to the changes in the LCR adopted by the Basel Committee in January 2013. These changes include, in particular, an expansion in the definition of eligible high-quality liquid assets and changes to the inflow and outflow rates for individual items. These changes have been taken into account in the study for the first time.