Basel III monitoring

The Basel Committee on Banking Supervision’s Basel III monitoring exercise started studying the impact of the capital requirements and of the new liquidity standards on selected banks in 2011. This exercise is conducted semi-annually, with end-December and end-June reporting dates. Following the COVID-19 pandemic, no data were collected for the end-June 2020 reporting date, but monitoring resumed in December 2020. Amongst other things, the exercise monitors banks’ behavioural responses to the forthcoming regulatory adjustments and estimates changes in capital requirements under fully phased-in frameworks. The statistical annex as at the current reporting date (31 December 2021) includes the impact of the final Basel III reform package, as endorsed by the Basel Committee in December 2017. For the first time, the statistical annex includes impacts of the European Commission’s proposal for implementing the Basel III supervisory framework into EU law.

Results of the Basel III monitoring exercise for German banks as at 31 December 2021

  • The increase in minimum required capital (MRC) resulting from the phase-in of the final Basel III reform package comes to 16.7% for this reporting date. As observed at previous reporting dates, the increase is greater for Group 1 banks (large internationally active banks) than for Group 2 banks (all other banks), at 18.7% and 11.4%, respectively.
  • The increase is slightly greater than it was at the previous reporting date. This change can be attributed to two contrasting developments. First, portfolio changes by existing exercise participants resulted in MRC rising by 5.2 percentage points. Second, additions to the sample offset much of this rise. Overall, the increase was 0.8 percentage point greater than at the previous reporting date.
  • As hitherto, the output floor is the main factor driving the increase in MRC for German banks. Once it has reached the fully phased-in level, the output floor will represent the binding capital requirement for nearly one-third of participating banks.
  • Alongside the increase in MRC, there is a decline in the Common Equity Tier 1 (CET1) capital ratio from the current level of 16.5% to 13.1% with the final Basel III reform package fully phased in. The leverage ratio came fully into force in June 2021 and stands at 5.8% for the participating banks.
  • The European Commission’s proposal for implementing the Basel III supervisory framework into EU law reduces the impact for German banks. Based on the Commission’s October 2021 proposal and allowing for the transitional arrangements under the output floor, the MRC increase is estimated to come to 5.4%. Once the transitional arrangements under the output floor expire in 2033, the likely increase rises to 11.1%. Note here, that the analysis, like the EBA’s studies, also considers requirements under the O-SII buffer, the countercyclical capital buffer as well as Pillar 2 (P2R) and not only internationally harmonised Basel buffers like the G-SII buffer and the capital conservation buffer.
  • The participating banks far exceed the minimum requirements for liquidity coverage. On aggregate, the liquidity coverage ratio (LCR) is 167.1% and the net stable funding ratio (NSFR) 124.8%, up slightly on the previous reporting date (by 5.6 percentage points and 0.2 percentage point, respectively).