Basel III monitoring

The Basel Committee on Banking Supervision’s Basel III monitoring exercise started studying the impact of the capital requirements and new liquidity standards on selected banks in 2011. It is conducted semi-annually at the end of December and at the end of June. Amongst other things, this exercise monitors banks’ behavioural responses to forthcoming regulatory adjustments and estimates the capital shortfalls under fully phased-in frameworks. The statistical annex for the current reporting date (31 December 2019) includes the impact of the finalised Basel III reform package, as endorsed by the Basel Committee in December 2017.

Results of the Basel III monitoring exercise for German banks as at 31 December 2019

  • Assuming full implementation of the final Basel III reform package, the minimum required capital (MRC) across all participating banks increases by 23.8 %. Calculating the effect for Group 1 banks (large, international active banks) and Group 2 banks (all other banks) separately, the increase is significantly higher for Group 1 banks (30.9 %) than for Group 2 banks (7.9 %). Compared to the previous period, the impact on the overall MRC decreased by 3.1 percentage points. This development results mainly from a change in the sample and only partly from banks’ portfolio restructuring.
  • The main driver of the increase is the introduction of the output floor. Throughout the phase-in of the output floor, its effect across all participating banks will increase from 0.1 %, given a level of 50 % in 2023, to 17.0 % at its fully phased-in level of 72.5 % in 2028. Once it has reached this fully phased-in level in 2028, the output floor will represent the binding capital requirement for around one-fifth of the participating banks.
  • With the final Basel III reform package fully phased in, the increase in MRC reduces the Common Equity Tier 1 (CET1) capital ratio from the current level of 15.0% to 10.9 %. The leverage ratio of participating banks drops by 0.1 percentage points to 4.7%, assuming a full implementation of the final reform package.
  • In July 2020, the BCBS published targeted revisions to the credit valuation adjustment risk framework. These revisions could not be considered by banks in the data collection process for the current reporting date. By approximation, it is estimated that the revisions will reduce the MRC change for CVA risk from 5.8 % to 3.7 % and the total MRC change from 23.8 % to 22.5 %. In particular, there will be relief for Group 1 banks and large Group 2 banks. The full implementation of all revisions is likely to reduce the MRC increase further.
  • The participating banks meet the new standards for liquidity coverage almost entirely across the board. On aggregate, the LCR is 157 % and the NSFR is 112 %, thus slightly increasing compared to the previous period (+4.8 Pp and +3.6 Pp, respectively). None of the participating banks needs additional liquidity to meet the minimum requirement for the LCR. To meet the NSFR, there is a residual shortfall of around €22.7 billion stable refinancing.