Multinational banks pass Basel III – BIS

MANILA, Philippines - The Bank for International Settlement (BIS) has reported that all large internationally active banks fulfilled the Basel III risk-based capital minimum requirement.

The BIS is the world’s oldest international financial organization.

It has 60 member central banks, representing countries from around the world that together make up about 95 percent of global economies.

It is often referred to as the “central bank of all central banks.”

Meanwhile, the Basel Committee of the BIS indicated that aside from the risk-based capital, the large internationally active bank also fulfilled that common equity tier 1 (CET1) target level of seven percent, including the surcharges on global systemically important banks (G-SIBs).

A total of 221 banks, 100 are classified as large internationally active banks otherwise known as Group 1 banks, which are defined as internationally active banks that have Tier 1 capital of more than €3 billion.

The remaining 121 banks are classified as Group 2 banks, or all other banks.

In the second semester of 2014, Group 1 banks reduced their capital shortfalls relative to the higher Tier 1 and total capital target levels.

“The additional Tier 1 capital shortfall has decreased from €18.6 billion to €6.5 billion and the Tier 2 capital shortfall has decreased from €78.6 billion to €40.6 billion,” the committee report indicated.

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 ending Dec. 2014 was €228.1 billion.

Under the same assumptions, there is no capital shortfall for Group 2 banks included in the sample for the CET1 minimum of 4.5 percent.

For a CET1 target level of seven percent, the shortfall narrowed from €1.8 billion to €1.5 billion since the previous period.

The average CET1 capital ratios under the Basel III framework across the same sample of banks are 11.1 percent for Group 1 banks and 12.3 percent for Group 2 banks.

Basel III’s liquidity coverage ratio (LCR) came into effect this January.

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 125 percent on June 2014, up from 121 percent six months earlier.

For Group 2 banks, the weighted average LCR was 144 percent, up from 140-percent six months earlier.

For banks in the sample, 85 percent reported an LCR that met or exceeded 100 percent, while 98 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) – which was finalized by the Basel Committee in October 2014.

The weighted average NSFR for the Group 1 bank sample was 111 percent while for Group 2 banks the average NSFR was 114 percent.

As of December 2014, 75 percent of the Group 1 banks and 85 percent of the Group 2 banks in the NSFR sample reported a ratio that met or exceeded 100 percent, while 92 percent of the Group 1 banks and 93 percent of the Group 2 banks reported an NSFR at or above 90 percent.