Basel III monitoring
In its Basel III monitoring programme, the Basel Committee on Banking Supervision studies the impact of the capital requirements and the liquidity standards of the Basel III framework on selected institutions. At the European level, the European legislation implementing the initial Basel III standards (CRR/CRD IV) has been in force since 1 January 2014 and will be fully phased in by 2024. Monitoring is conducted semi-annually at the end of December and the end of June. The statistical annex for the current reporting date (June 2018) also includes the effects of the final Basel III standards, which the Basel Committee endorsed in December 2017.
Results of the Basel III monitoring exercise for German institutions based on 30 June 2018 data
- The total capital shortfall assuming the full implementation of the final Basel III standards increased slightly from €12.2 billion to €15.5 billion compared with the previous survey based on 31 December 2017 data. Based on a consistent sample, this corresponds to around a quarter of the initial capital shortfall from the first survey based on 30 June 2011 data.
- Aggregate minimum capital requirements (including the output floor of 72.5%) show an increase of 23.6% and are thus at the level of the previous survey. The output floor remains the main driver behind these changes. Throughout the phase-in period for the output floor, its effect increases from 0.6% to 17.8%. Once fully implemented, the output floor represents the binding capital requirement for around one-fifth of the participating institutions.
- Under the full implementation of the final Basel III standards, the Common Equity Tier 1 (CET1) capital ratio falls from its current level of 14.5% to 10.5%, thus remaining unchanged compared with the previous survey. The aggregate leverage ratio also remains at the same level of 4.5% compared with the previous reporting date.
- All other things being equal, the minimum capital requirements for credit risk drop owing to the revision of the IRB, while the revisions of the standardised approach and the securitisation framework cause a rise in the minimum capital requirements.
- Similar to the previous survey, the minimum capital requirements in terms of each risk category rise the most for market risk due to the full implementation of the Fundamental Review of the Trading Book (FRTB). Due to a change in the sample for this risk category compared with the previous survey, also Group 2 institutions calculate around 50% of the minimum capital requirements for market risk using internal models.
- Within Group 2, four of the 15 institutions fall below the materiality threshold and may carry over their capital requirements for CVA risk from counterparty credit risk. For Group 1 institutions, 73% of the minimum capital requirements for CVA risk are calculated using the new standardised approach, while for Group 2 institutions, up to 80% are determined based on the new basic approach.
- Changes to minimum capital requirements for operational risk depend substantially on how the internal loss multiplier (ILM) is calibrated. If institution-specific operational risk-related losses are employed, the minimum capital requirements increase. If the ILM is set at a value of one, however, the minimum capital requirements decrease. This effect is especially pronounced for Group 1 institutions.
- The requirements for institutions’ liquidity coverage are almost completely fulfilled. In the aggregate, the liquidity coverage ratio (LCR) stands at 150% and the net stable funding ratio (NSFR) at 111%. To meet the minimum requirement for the LCR, none of the participating institutions have a shortfall of high quality liquid assets. To meet the NSFR, there is a residual shortfall of stable refinancing of around €7.9 billion.