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RPT-Fitch: G-SIBs Meet Basel III Standards Early with 10.1% Average CET1 Ratio
January 29, 2014 / 8:02 AM / in 4 years

RPT-Fitch: G-SIBs Meet Basel III Standards Early with 10.1% Average CET1 Ratio

Jan 29 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings analysis shows that the global systemically important banks (G-SIBs) have essentially met their Basel III capital requirements early, with an average Basel III Tier 1 common equity (CET1) ratio of 10.1% at the end of Q313, according to a new report based on data available for 27 of the 29 banks. The Basel III requirements will not formally take effect until the beginning of 2019.

For the G-SIBs as a whole, the average minimum CET1 ratio requirement was 8.4%, depending on their firm-specific required capital buffers, with an average additional capital buffer of 1.7%. The average Basel III CET1 ratio was comparable across Europe, Asia and the U.S., at 10.2% for European G-SIBs, 10.1% for Asian G-SIBs and 10.0% for the U.S. institutions.

In a previously published study, Fitch estimated that the G-SIBs, as of end-2011, faced a cumulative capital shortfall of approximately $566 billion for each institution to reach a 10% CET1 Basel III ratio.

a€˜For the G-SIBs, reaching an average Basel III CET1 ratio of 10% has been a multi-year effort focused on bolstering equity capital, primarily through retained earnings, and reducing risk-weighted assets,a€™ said Martin Hansen, Senior Director of Fitcha€™s Macro Credit Research team. a€˜An important question is whether the G-SIBa€™s ratio bolstering efforts will continue or if current levels represent a new equilibrium.a€™

Several factors could affect these ratios going forward. Scepticism around risk-weightings could have consequences, with the European Central Banka€™s asset quality review potentially resulting in adjustments to risk-based capital ratios. Additionally, some G-SIBs have already announced higher target ratios well above 10%, and the implementation of the leverage ratio, if acting as a binding constraint rather than as a backstop, could also push Basel III CET1 ratios even higher. On the other hand, a potential limiting factor is the pressure for banks to satisfy investorsa€™ return on equity (ROE) expectations, as the hurdle rate ROE for newly originated credits becomes tougher to achieve amid stricter capital requirements.

The report is entitled a€˜Basel III Common Equity Tier 1: Early Deliverya€™ and is available on www.fitchratings.com.

Link to Fitch Ratings’ Report: Basel III Common Equity Tier 1: Early Delivery

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