Global banks now Basel III compliant

MANILA, Philippines - The Basel Committee has reported that all large internationally active banks meet the Basel III risk-based capital minimum requirements, as of June last year.

The latest report of the committee monitoring compliance to the Basel III framework covers a total of 224 banks, broken down to 98 large internationally active banks otherwise known as Group 1 banks and defined as internationally active banks that have Tier 1 capital of more than €3 billion, and 126 Group 2 banks (i.e., representative of all other banks).

“Data as of June 30, 2014 show that all large internationally active banks now meet the Basel III risk-based capital minimum requirements,” the committee said in a press statement.

Moreover, capital shortfalls relative to the higher target levels have been further reduced.

For example, at the Common Equity Tier 1 (CET1) target level of seven percent (plus the surcharges on global systemically important banks – G-SIBs – as applicable), the aggregate shortfall for Group 1 banks is €3.9 billion, compared to €15.1 billion on end December 2013 and €485.6 billion on June 2011.

As a point of reference, the sum of after-tax profits prior to distributions across the same sample of Group 1 banks for the six-month period end June 2014 was €210.1 billion.

Under the same assumptions, the capital shortfall for Group 2 banks included in the sample is estimated at €0.1 billion for the CET1 minimum of 4.5 percent and €1.8 billion for a CET1 target level of seven percent.

This represents a narrowing of the shortfall from €2.0 billion and €9.4 billion compared to the previous period, respectively.

The average CET1 capital ratios under the Basel III framework across the same sample of banks are 10.8 percent for Group 1 banks and 11.8 percent for Group 2 banks.

Basel III’s Liquidity Coverage Ratio (LCR) came into effect on January this year.

The minimum requirement is set initially at 60 percent and will then rise in equal annual steps to reach 100 percent in 2019.

The weighted average LCR for the Group 1 bank sample was 121 percent on June 30, 2014, up from 119 percent six months earlier.

For Group 2 banks, the weighted average LCR was 140 percent, up from 132 percent six months earlier. For banks in the sample, 80 percent reported an LCR that met or exceeded 100 percent, while 96 percent reported an LCR at or above 60 percent.

Basel III also includes a longer-term structural liquidity standard – the Net Stable Funding Ratio (NSFR) – was finalized by the Basel Committee in October 2014.

Given data collected as part of the end-June 2014 reporting period was obtained prior to the release of the revised standard, the report provides analysis of results under the consultative document issued in January 2014.

“The weighted average NSFR for the Group 1 bank sample was 110 percent while for Group 2 banks the average NSFR was 114 percent. As of June 2014, 80 percent of the 212 banks in the NSFR sample reported a ratio that met or exceeded 100 percent, while 92 percent of the banks reported an NSFR at or above 90 percent,” the committee added.