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 with end of December and end of June reference dates. Due to the COVID-19 pandemic, the exercise was suspended in June 2020 but 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 for the current reporting date (30 June 2021) includes the impact of the finalised Basel III reform package, as endorsed by the Basel Committee in December 2017. The report does not take account of the European Commission’s proposal for implementing the Basel III reform package from October 2022.

Results of the Basel III monitoring exercise for German banks as at 30 June 2021

  • The minimum required capital (MRC) increases by 15.9% for this reporting date when assuming full implementation of the final Basel III reform package. As observed in previous exercises, the increase for Group 1 banks (large internationally active banks), at 19.5%, is significantly higher than for Group 2 banks (all other banks), which show a rise of 5.1%.
  • Compared to the previous exercise, the impact on the overall MRC decreased slightly by 0.5 percentage points. The increase of 2.1 percentage points due to changes in the sample was offset by a reduction of 2.6 percentage points due to banks’ portfolio changes.
  • Similarly to the previous exercise, Article 429a (1) of CRR II allows banks to exclude central bank exposures from the leverage ratio exposure amount (LREA). This temporary measure was unwound in the analyses, in line with the exercises conducted by the BCBS. Including the LREA exclusions, the overall MRC impact would be 21.2%.
  • The main driver of the increase remains 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 12.5% at its fully phased-in level of 72.5%. Once it has reached the fully phased-in level, the output floor will represent the binding capital requirement for 15% 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 15.4% to 12.0%. The leverage ratio came fully into force in June 2021 and stands at 5.0% for the participating banks.
  • The participating banks far exceed the minimum requirements for liquidity coverage. On aggregate, the liquidity coverage ratio is 162% and the net stable funding ratio is 125%; both are slightly higher than in the previous period (+0.4 percentage points and +6.3 percentage points, respectively).