02 July 2019
The European Banking Authority (EBA) presented today, during a public hearing, the results of its Basel III implementation assessment, which includes a quantitative impact study (QIS) based on data from 189 EU banks, and a comprehensive set of policy recommendations in the area of credit and operational risk, output floor and securities financing transactions. This work, which responds to a Commission's call for advice, shows that the full implementation of Basel III in the EU, under the most conservative assumptions, increases the weighted average minimum capital requirement (MRC) by 24.4%, leading to an aggregate capital shortfall of EUR 135.1 bn. Importantly, the capital impact is almost entirely driven by large globally active banks. The impact on medium-sized banks is limited to 11.3% in terms of MRC, leading to a shortfall of EUR 0.9 bn, and on small banks to 5.5% MRC with a EUR 0.1 bn shortfall. The EBA will publish the full report by the end of July.
Overall, the EBA welcomes the improvements introduced in the final Basel III package. These include the introduction of a higher degree of risk sensitivity in the standardised approaches to measure credit and operational risk, and constraints to modelling of low-default portfolios where, in the past, undue variability was observed in internal credit risk models.
Today's results show that following the full implementation of Basel III in the EU, the increase in minimum capital requirements (MRC) and the related capital shortfall varies across banks. The weighted average increase in MRC is 24.4% for the entire sample, under conservative assumptions. However, for half of the banks in the sample, the impact is less than 10.6%, while the MRC increase for small banks is limited to 5.5%. For a quarter of the banks in the sample, MRC decreases. The total capital shortfall is about EUR 135 bn, almost entirely in large banks, and this shortfall would be reduced to EUR 58.7 bn if banks were to retain profits (based on 2014-18 data) throughout the transition period.
These results of the quantitative impact study (QIS) should also be read in conjunction with a set of very conservative assumptions applied to the assessment, namely:
This QIS is based on a set of different methodological assumptions than those used for the regular Basel III monitoring exercise. Therefore, the figures of this assessment cannot be compared to those of previous monitoring exercises.