At EUR 0.6 billion of additional Tier 1 capital required for the entire EU banking sector, the estimated capital shortfall to comply with the Basel III reform has been practically eliminated.
The European Banking Authority (EBA) today published its second mandatory Basel III Monitoring Report which assesses the impact that Basel III full implementation will have on EU banks in 2028. According to this assessment -- which uses a sample of 157 banks for the point-in-time analysis -- in terms of minimum Tier 1 capital the impact has significantly decreased in relation to the previous reference date of December 2021. In terms of estimated capital shortfall, the impact of the reform has been nearly fully absorbed.
At EUR 0.6 billion of additional Tier 1 capital required for the entire EU banking sector, the estimated capital shortfall to comply with the Basel III reform has been practically eliminated. The overall impact includes the economic impact of the Covid-19 pandemic that had materialised up until December 2022, the reference date of this Report. A separate Annex to the Report also includes the impact of the proposals for the EU implementation of Basel III under the revised Capital Requirements Regulation (CRR3).
Overview of the results
Overall, the results of the mandatory Basel III capital monitoring exercise show that European banks' minimum Tier 1 capital requirement would increase by 9.0% at the full implementation date in 2028. The main contributing factors are the output floor and credit risk. The overall minimum Tier 1 capital requirement for large and internationally active banks (Group 1) would increase by 10.0%. The requirements for the global systemically important institutions (G-SIIs, subset of Group 1) and for Group 2 banks would increase by 16.0% and 3.6%, respectively.
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