October 16, 2018 / 7:40 PM / 4 months ago

Systemically important banks show marked improvement in capital levels, Basel report shows

NEW YORK(Thomson Reuters Regulatory Intelligence) - Large internationally active banks have seen their final Basel III capital shortfalls drop by more than 70 percent compared with year-end 2015. The findings were contained in a semi-annual report{www.bis.org/bcbs/publ/d449.pdf} by the Basel Committee on Banking Supervision (BIS) that used data from year-end 2017.

A picture illustration shows a U.S. dollar bank note and a one Euro coin, taken in Warsaw January 26, 2011.

“On a fully phased-in basis, the capital shortfalls at the end-2017 reporting date are €25.8 billion (about $29.7 billion) for Group 1 banks at the target level. This is more than 70 percent lower than in the end-2015 cumulative quantitative impact study exercise and driven mainly by higher levels of eligible capital,” the BIS report said.

The report covers a designated “Group 1” of major banks, including global systemically important banks.

These banks have raised about $66.5 billion in total capital during that period both through profits and through external injections, with common equity tier 1 (“CET1”) accounting for the majority, the report said.

Global systemically important banks, or G-SIBs, within the Group 1 banks were the main contributors for the decrease in the shortfall, accounting also for all of the CET1 capital shortfall.

The report is part of the monitoring mechanism the BIS set up in 2012 to assess semi-annually the impact of regulatory reforms instituted in the wake of the financial crisis. The reports emphasize risk-based capital ratios, leverage ratios, and liquidity metrics, using data collected by national supervisors.


The report is also the first of its kind in measuring the effects of finalization of the Basel III reforms{www.bis.org/bcbs/publ/d424.pdf}, enacted in December 2017.

Those reforms focused on:

- enhancing the robustness and risk sensitivity of the standardized approaches for credit risk;

- constrained the use of the internal model approaches, by placing limits on certain inputs used to calculate capital requirements;

- replaced the existing Basel II output floor with a more robust risk-sensitive floor; and

- introduced a leverage ratio buffer to further limit the leverage of global systemically important banks (G-SIBs).


By assessing health of large banks in more detail than before, the report findings support an already established trend – that their health measured by key capital, and liquidity metrics kept improving. Specifically:

- a slight enhancement in leverage ratios (from 5.7 percent in June 2017 to 5.9 percent by end-year 2017) in G-SIBs, driven by Tier 1 capital increases which more than offset an overall increase in their exposures;

- the level of large banks’ CET1 capital has increased by 84.0 percent from $2,288 billion to $4,211 billion from June 2011 to end-2017, largely due to profits generated;

- 95 percent of large banks (including all the G-SIBs) meet fully phased-in liquidity coverage ratio (133 percent) and net stable funding ratio (116 percent);

- a Common Equity Tier 1 (CET1) capital ratio under the fully phased-in final Basel III framework of 12 percent.

The report analyzes data for 206 banks, including 111 large internationally active banks that include all designated 30 global systemically important banks. It does not take into account any transitional arrangements such as phase-in of deductions and grandfathering arrangements.

It also ignores any additional capital requirements that may result from Pillar 2 of the Basel II framework, any higher loss absorbency requirements for domestic systemically important banks, or any countercyclical capital buffer requirements.

(Bora Yagiz, FRM is a New York-based Regulatory Intelligence Expert for Thomson Reuters Regulatory Intelligence, specializing in risk. Email Bora at bora.yagiz@thomsonreuters.com)

This article was produced by Thomson Reuters Regulatory Intelligence and initially posted on Oct 4. Regulatory Intelligence provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 400 regulators and exchanges. Follow Regulatory Intelligence compliance news on Twitter: @thomsonreuters

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