Basel III monitoring
To assess the impact of changes in capital requirements and liquidity standards, the Basel Committee on Banking Supervision conducts a monitoring exercise among selected institutions since 2011. At the European level, the European implementation of the initial Basel III reform package (CRR/CRD IV), which is being phased in until 2024 using transitional provisions, is monitored since 1 January 2014. The monitoring exercise is conducted semi-annually with reporting dates as of end December and end June. The report based on data as of end December 2017 also includes for the first time the impact of the final Basel III reforms, which were endorsed by the Basel Committee in December 2017.
Results of the Basel III impact study for German banks as of 30 June 2017
The capital shortfall of German institutions due to the full implementation of CRR/CRD IV is almost closed. Capital ratios have been successively strengthened since the first Basel III monitoring exercise. The Basel III framework has helped significantly to improve the resilience of German institutions since the first exercise in 2011.
The full implementation of the final Basel III reforms in 2027 (including an output floor of 72.5 %) will require additional total capital of €12.2 billion. Based on a consistent sample, this corresponds to around one-fifth of the capital shortfall estimated in the first exercise based on end June 2011 data.
In 2022 (full implementation of the final Basel III reforms; output floor of 50%), the capital shortfall is €2.6 billion. Thus, the transitional period until 2027 gives institutions the flexibility to build up any additional capital needed. In addition, during the transitional period, the effect of the output floor will be floored to a maximum of 25% of risk-weighted assets before the application of the output floor.
Under the final Basel III rules (including an output floor of 72.5%) the minimum required capital rises by 23.7%. The CET 1 capital ratio will fall from the current level of 15.1% to 10.5%, on average. For Group 2 institutions, the increase in the minimum required capital is lower (5.7%) than for Group 1 institutions (28.0%).
A main driver of the increase in minimum required capital is the introduction of the 72.5% output floor. The impact of changes for credit risk, market risk, operational risk and CVA are each below 5% of the current total minimum required capital.
The introduction of the output floor should reduce RWA variability and improve comparability of capital ratios.
With respect to the impact of individual risk categories, the largest increase in minimum required capital is, as expected, for market risk due to the full implementation of the FRTB.
The new liquidity standards, LCR and NSFR, are almost completely fulfilled. All institutions have an LCR of over 100%. Only minimal additional stable funding is needed to fulfil NSFR requirements.