Monitoring reports on the impact of Basel IV and its adaptation to the European framework

BCBS/EBA

In September 2022, the Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) published their half-yearly reports monitoring the implementation of the final Basel III reforms (hereinafter and indistinctively, Basel IV or BIS IV, as commonly referred to in the industry) based on December 2021 data. Moreover, the EBA has for the first time calculated the impact of BIS IV specifically for the European banking industry taking into account the proposed amendment to the 2021 capital requirements regulation (CRR III). In addition, in February 2023 the BCBS published a second half-yearly report based on June 2022 data.


Monitoring reports on the impact of Basel IV and its adaptation to the European framework

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Executive summary

The latest BIS IV monitoring report from the BCBS shows changes in capital ratios compared to the September 2021 report, from record highs to pre-pandemic levels. In turn, the BIS IV monitoring report published by the EBA follows up on the EBA's decision to make the QIS exercise mandatory for a representative set of EU/EEA banks. The EBA has also published a separate annex on the impact of the European Commission's (EC) proposal for the implementation of BIS IV in the EU under the Capital Requirements Regulation (CRR III).

Main content

This Technical Note summarises the main findings of the BCBS and EBA reports:

BCBS - Global impact of Basel IV

  • Sample of banks: The report analyses data from 181 banks, of which 114 are large institutions (Group 1) and 66 are smaller institutions (Group 2).
  • General issues:
    • Overall, estimates assume full implementation of the BIS IV requirements (i.e. as planned for 2028).
    • Both reports only take into account the Capital Conservation Buffer (CCB), as well as any applicable Global Systemically Important Banks (G-SIB) surcharge.
  • Aggregate results of the impact of the reform:
    • The first report (Dec.21 data) shows that the BIS IV amendments lead to an increase in the minimum capital requirement (Tier 1 MRC), where the output floor (OF) has a significant impact for large institutions and credit risk has a significant impact for smaller institutions. The second report (June 22 data), shows a further increase in the capital requirement, except for the smallest institutions, where there is a significant decrease (around 8%).
    • With regard to the results by region, the impact on requirements fell from 17% to 15% for European institutions and from 4% to 2% for US institutions compared to the previous period.

BIS IV capital ratios for the largest banks declined from their record highs in the second half of 2021 to pre-pandemic levels in the first half of 2022. The leverage ratio declined on average across all regions, after showing some volatility during the pandemic period.

EBA - Impact of Basel IV in Europe under the CRR III framework

  • Sample of banks: 163 banks from the European Economic Area (EEA) including 58 large institutions (Group 1) and 63 smaller institutions (Group 2).
  • General aspects:
    • The impact is assessed under the assumption of full implementation of BIS IV, including the OF transition period, which in Europe extends until 2030.
    • In this report, Pillar 2 (add-ons) and capital buffer requirements have been included in the calculation.
  • Aggregate results of the impact of the reform:  Although the EBA analysis is not directly comparable with the direct impact of BIS IV implementation, the adaptation to the European framework has a total impact of 11.5%, which is 4% less than the EBA analysis without adaptation.

Download the technical note on Monitoring reports on the impact of Basel IV and its adaptation to the European framework (document also available in Spanish).