EBA and BCBS publish Basel III monitoring results

Both Basel and EBA published the mid-year 2013 Basel III monitoring results. The monitoring rounds show how banks are converging toward the Basel III end-state.

EBA’s main findings show that the Common Equity Tier 1 capital ratio (CET1) of the largest internationally-active European banks (Group 1 banks) would be on average 9.1% compared to a ratio of 12% under the current regulation.

Therefore, Group 1 banks would face a CET1 capital shortfall of EUR 2.4 billion to achieve the minimum requirement of 4.5%, and of EUR 36.3 billion to reach the target level of 7.0% or the higher threshold set for global systemically important banks (G-SIBs). The latter capital shortfall would, therefore, be decreased by 48.4% (from EUR 70.4 billion to EUR 36.3 billion).

Basel’s main findings show that shortfalls in the risk-based capital of large internationally active banks generally continue to shrink. At the Common Equity Tier 1 (CET1) target level of 7.0% (plus the surcharges on G-SIBs as applicable), the aggregate shortfall for Group 1 banks is €57.5 billion, compared to €115.0 billion on 31 December 2012. However, the aggregate shortfall of CET1 capital with respect to the 4.5% minimum has increased to €3.3 billion, which is €1.1 billion higher than previously. As a point of reference, the sum of after-tax profits prior to distributions across the same sample of Group 1 banks for the year ending 30 June 2013 was €456 billion.

Under the same assumptions, the capital shortfall for Group 2 banks included in the sample is estimated at €12.4 billion for the CET1 minimum of 4.5% and €27.7 billion for a CET1 target level of 7.0%. This represents an increase compared to the previous period of €1.0 billion and €2.1 billion, respectively, which is caused by a small number of Group 2 banks within the sample. The sum of Group 2 bank after-tax profits prior to distributions in the year ending 30 June 2013 was €26 billion.

The average CET1 capital ratios under the Basel III framework across the same sample of banks are 9.5% for Group 1 banks and 9.1% for Group 2 banks. This compares with the fully phased-in CET1 minimum requirement of 4.5% and a CET1 target level of 7.0%.