European Banking Authority Report on Impact of Basel III Reforms

The European Banking Authority has published two reports on the impact of the Basel III liquidity coverage ratio, as implemented in the EU, and the estimated impact of the Basel III credit and market risk, and credit valuation adjustment reforms, which are yet to be implemented by the EU. The reports are based on 2019 data that was collected prior to the outbreak of COVID-19.

The Basel III liquidity coverage ratio has been implemented in the EU as a 100% minimum binding standard, applicable since January 1, 2018 (one year ahead of the Basel implementation date of January 1, 2019). The LCR requirements are set out in the Capital Requirements Regulation and Capital Requirements Directive (and supplemented by the LCR Delegated Regulation). The EBA’s April 2020 report on liquidity measures under CRR finds that EU banks’ average liquidity coverage ratio was 147%. This demonstrates that EU banks have further improved their compliance with the LCR.

The Basel III revisions to credit risk, the leverage ratio framework, operational risk and the new output floor ratio, as well as to the credit valuation adjustment framework, were finalized in 2017. The full phase-in of the final Basel III requirements was originally intended to take effect from January 1, 2022, and be phased in over five years. However, following the outbreak of COVID-19, the Basel Committee’s Governors and Heads of Supervision have announced a one-year deferral of the implementation to January 1, 2023, meaning the final changes must be phased-in by 2028. The EBA’s April report provides an assessment of the impact that full implementation of the Basel III reforms will ultimately have on regulatory capital ratios and shortfalls, credit risk, the fundamental review of the trading book, operational risk, the output floor, the revised leverage ratio and the net stable funding ratio. In its report, the EBA finds that European banks’ minimum Tier 1 capital requirement would increase by an average of 16.1% (from the current EU implementation of the Basel Standards) by 2028 (the date set for full implementation of Basel III). To comply with the new framework, EU banks are expected to need €2.1bn of additional Tier 1 capital (based on data prior to the COVID-19 outbreak).

View the EBA's Report on Liquidity Measures under the Capital Requirements Regulation.

View the EBA's Monitoring Exercise Report on the full implementation of Basel III.

View details of the Basel III reforms.

View details of the deferral of Basel III implementation.
 
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