Shearman & Sterling LLP | Financial Regulatory Developments Focus | European Banking Authority Assesses Impact of the New Basel III Framework on EU Banks
Financial Regulatory Developments Focus
  • European Banking Authority Assesses Impact of the New Basel III Framework on EU Banks

    The European Banking Authority has published a cumulative impact assessment setting out its analysis of the impact of the finalized "Basel III" prudential framework on EU banks.

    Basel III comprises a package of revisions to the Basel framework, which form an important component of the regulatory response to the global financial crisis. The initial phase of Basel III focused on addressing a number of shortcomings identified in the pre-crisis regulatory framework. These have been implemented in the EU through revisions to the Capital Requirements Directive and through the introduction of the Capital Requirements Regulation. The finalized framework, announced on December 7, 2017, includes further elements developed with the overall aim of addressing undue variability in the calculation of risk weighted assets and improving the comparability of banks' capital ratios.

    Using December 2015 data, the EBA has conducted an analysis of the impact of the December 2017 revisions on the EU banking system. A sample of 88 EU institutions from 17 EU member states was used, comprising 36 Group 1 institutions and 52 Group 2 institutions. The EBA's impact assessment outlines, at a high level, the effect of the December 2017 revisions on: (i) the minimum required capital; (ii) regulatory capital ratios, leverage ratios and capital shortfalls; and (iii) the extent to which banks are constrained by the different metrics of capital requirement in the revised framework, namely the output floor, the leverage ratio and risk weighted assets.

    The EBA plans to publish a further, more detailed, cumulative impact assessment in due course.

    View the cumulative impact assessment using December 2015 data.

    View summary of the Basel III reforms.