Basel III monitoring

In monitoring the implementation of Basel III, the Basel Committee on Banking Supervision has been studying the impact of the capital requirements and the new liquidity standards on selected banks since 2011. Monitoring is conducted semi-annually at the end of December and the end of June. The objectives of the exercise are to monitor adaptive behaviours of banks in order to prepare for upcoming regulatory reforms, and to assess the incidental capital shortfall of fully-phased-in frameworks. The statistical annex for the current reporting date (Dec-2018) includes the effects of the finalised Basel III reform package, which the Basel Committee adopted in December 2017.

Results of the Basel III monitoring exercise for German banks as at 30 June 2019

  • Assuming full implementation of the final Basel III reform package, the total capital shortfalls for a German sample adds up to €17.2 billion as at 30 June 2019. Based on a consistent sample, this corresponds to around one-third of the original total capital shortfalls recorded in the first survey as at the reporting date of 30 June 2011. The capital shortfalls are higher than the figure identified by the previous impact study (€14.0 billion as at 31 December 2018) because of explicit quality improvements in the data submitted by participating banks, a change in the sample, and adjustments to the methodology used in the calculation of CVA risk.
  • The minimum required capital (MRC) across all participating banks increases by 26.9%. Group 1 banks (internationally active banks with Tier 1 capital of more than €3 billion under the current framework) show a stronger increase (32.0%) than Group 2 banks (all other banks), whose MRC rises by 13.2% on average.
  • The increase is mainly driven by 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 19.7% 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-quarter of 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 to 10.1%, down from the current level of 14.4%. The leverage ratio of participating banks drops by 0.2 percentage point to 4.3%, assuming full implementation of the final reform package (see Table 2).
  • In November 2019, the BCBS published a consultative document for determining CVA risk. The data submissions make it possible to estimate the impact for some of the proposed adjustments. Anticipating these adjustments the MRC changes for CVA risk are reduced from 6.5% to 4.2%, and from 26.9% to 25.4% considering full implementation of the final Basel III reform package. There will be relief for Group 1 banks and large Group 2 banks, in particular. Full implementation of all proposals is likely to further reduce the MRC increase. 
  • The new standards for banks’ liquidity coverage are met almost entirely across the board. On aggregate, the LCR is 152% and the NSFR is 108%. None of the participating banks need additional liquidity to meet the minimum requirement for the LCR. To meet the NSFR, there is a residual need for stable refinancing of around €27 billion.