In the run up to full implementation of Basel III in the EU, the EBA has published an implementation impact study and policy advice set, covering securities financing transactions, operational risk, output floor and credit risk.
The EBA notes that the likely impact of full implementation of Basel III will be to increase the capital requirements of banks by approximately 25% on average. However, the majority of capital shortfalls are predicted to affect ‘major’, cross-border, banking institutions; smaller banks are likely to only face 11% on average. The EBA’s analysis predicts a potential shortfall in total capital of €58.7 billion by 2027, including €40.6 billion CET1, mostly lying with banks who did not make any profits in 2014-2018.
In response to this work, the European Commission has called for further analysis from the EBA in a number of areas:
- quantative assessment of the impacts resulting from the application of the output floor at all levels;
- additional analysis to increase risk sensitivity in the equity exposure class;
- additional analysis to increase the risk sensitivity for specialised lending; and
- estimation of TLAC/ MREL shortfalls that changes to the calculation of RWAs would trigger.