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Second Mandatory EBA Assessment Reveals Substantially Reduced Impact on EU Banks in Basel III Implementation, Shortfalls Almost Entirely Mitigated

The European Banking Authority (EBA) published its second mandatory Basel III Monitoring Report which provides an assessment of the impact of the full baseline Basel III implementation on EU banks in 2028.

This assessment uses a sample of 157 banks and applies the same methodology as the Basel Committee on banking Supervision. In terms of minimum Tier 1 capital, the impact has significantly decreased in relation to the previous reference date of December 2021. The lower impact compared to 2021 is due to a reduced contribution of market risk and an increased offsetting effect of the leverage ratio impact observed in the latest data collection.
To comply with the new framework, EU banks would combined need a total of EUR 0.6 billion of additional Tier 1 capital at the full implementation date in 2028. The overall impact includes the economic impact of the Covid-19 pandemic that had materialized up until December 2022, the reference date of this Report.


Overview of the results:

Overall, the mandatory Basel III capital monitoring exercise, shows that European banks will need to increase their minimum Tier 1 capital by 9.0% by the full implementation date in 2028. The primary factors contributing to this increase are the output floor and credit risk. Specifically, for large and internationally active banks (Group 1), the minimum Tier 1 capital requirement will rise by 10.0%. Meanwhile, the capital requirements for global systemically important institutions (G-SIIs, which are a subset of Group 1) will see a 16.0% increase, while Group 2 banks will experience a 3.6% increase in their capital requirements.

A separate Annex to the Report also includes an assessment of the impact of the Basel III framework considering EU-specific adjustments. The considered adjustments are part of either the current CRR 2/CRD 5 framework or the different CRR 3/CRD 6 proposals to that are part of the EU Basel III implementation. Further, it calculates the cumulative impact results when considering all buffers and Pillar 2 requirements and not only the pure Basel requirements applied in the main text.

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