Greek Banks and Article 92 CRR
Silvia Merler published a great post on the solvency of Greek banks.
Though she focuses on CET1 ratios, I just realised that Article 92 of the CRR requires this:
1. Subject to Articles 93 and 94, institutions shall at all times satisfy the following own funds requirements:
(a) a Common Equity Tier 1 capital ratio of 4,5 %;
(b) a Tier 1 capital ratio of 6 %;
(c) a total capital ratio of 8 %.
Yes, the four banks comfortably satisfy the 4.5% requirement, but note the total capital ratio. It should be 8%.
The difference between Total Capital and CET1 is basically the amount of hybrids and subordinated debt that counts as capital. The question then is, how large is that difference?
To verify this, I checked the EBA stress test results, because they show the relevant ratios. This is what I found, with in yellow the data from Silvia, and in grey the EBA stress test data:
As you can see, at the time of the stress test, the differences between CET1 and Total Capital (TCR) were small. One can, for the four Greek banks that is, assume that CET1 equals Total Capital. This makes the 8% requirement much more interesting.
Stata code to query the EBA data:
ren C1CommonEquityTier1Capit CET1r
ren C2Tier1Capitalratio T1R
ren C3TotalCapitalratio TCR
ren RowLabels lei
browse lei CET1r T1R TCR if lei ==”M6AD1Y1KW32H8THQ6F76″ | lei ==”5299009N55YRQC69CN08″ | lei == “JEUVK5RWVJEN8W0C9M24” | lei == “5UMCZOEYKCVFAW8ZLO05”