EBA欧洲银行-EBA-Public-Hearing-2-July-2019-Basel-III-Call-for-Advice_59页_2mb

EBA Summary: Basel III Implementation Impact Assessment and Policy Recommendations

Core Content

The European Banking Authority (EBA) conducted an impact assessment of the Basel III reforms implemented in December 2017, delivering its advice to the European Commission by the end of July 2019. The assessment covers several key areas, including the Revised Standardised Approach (RWA) for credit risk, the Revised Internal Ratings-Based (IRB) Approach, the new Standardised Measurement Approach for Operational Risk, the treatment of Securities Financing Transactions (SFTs), and the new output floor for internal models. The EBA also considered revisions to the market risk framework and the CVA framework, as well as macroeconomic impacts in collaboration with the ECB.

Key Findings

Impact of Basel III Reforms (Steady State: 2027)

• Overall Impact: The full implementation of Basel III reforms leads to a 24.4% increase in Minimum Capital Requirements (MRC) for the entire sample under conservative assumptions.
• Distribution of Impact:
  • 50% of banks: MRC increase below 10.6%
  • Small banks: MRC increase limited to 5.5%
  • Around 1/4 of banks: MRC decreases
• Capital Shortfall: TC shortfall of about 135 EUR bn, almost entirely in large banks.
• Impact Drivers:
  • Large banks: Output Floor, CVA, and Operational Risk
  • Small banks: SA for credit risk
• Scenario Adjustments:
  • ILM = 1: Halves the impact of Operational Risk
  • CVA exemptions: Reduces CVA impact by 75%
  • SME supporting factor: Reduces Credit Risk impact by 40%
  • FRTB 2019 proxy: Almost halves market risk impact

Conservative Assumptions

• Static Balance Sheets: Assumed no changes in balance sheets during the transition period.
• No P2R or Macro-prudential Buffers: Used in the Basel III monitoring methodology.
• FRTB Calculations: Based on 2016 standards instead of 2019.
• Profit Retention: If banks retain profits during transition, the TC shortfall would reduce to 59 EUR bn.

Constraint Analysis

• Baseline Scenario:
  • 85.9% of total RWA constrained by RWs
  • 14.1% constrained by LR
• Revised Scenario:
  • 92.1% of total RWA constrained by RWs
  • 7.9% constrained by LR
  • OF: Main constraint in the revised framework, affecting 40 institutions
• Country Breakdown:
  • 15 subsidiaries are constrained by the OF
  • The OF is the main constraint for internal model institutions

Main Drivers of Impact

• Credit Risk SA: Increased risk sensitivity, penalizing riskier assets (e.g., equity, unrated banks, income-producing real estate)
• Credit Risk IRB: Lower LGD parameters and other reforms reduce RWAs
• Operational Risk: ILM discretion leads to a 3.5% RWA increase under central scenario
• CVA: No exemptions, leading to a 3.9% RWA increase
• Output Floor: Increases the capital requirements, particularly for internal model institutions

Impact by Institution Size

• Large Banks: 25.0% MRC increase, with TC shortfall of 135.1 EUR bn
• Medium Banks: 11.3% MRC increase
• Small Banks: 5.5% MRC increase

Key Policy Recommendations

1. Credit Risk – Standardised Approach (SA):

   • Introduce loan-splitting for residential mortgages
   • Lower SME risk weights
   • Continue use of ratings

2. Credit Risk – IRB:

   • Expand eligibility for SME supporting factor
   • Lower LGD parameters
   • Address challenges in assessing new criteria for existing portfolios

3. Operational Risk:

   • Consider the impact of ILM discretion
   • Implement a bank-specific ILM
   • Set a minimum loss threshold of EUR 20,000

4. Output Floors:

   • Ensure consistency across institutions
   • Address the concentration of capital shortfalls

5. Market Risk and SFTs:

   • Review the impact of FRTB 2019 revisions
   • Address the new treatment of SFTs

Additional Considerations

• EU-Specific Elements: SME and infrastructure supporting factors are being re-evaluated in the context of global recalibration.
• Implementation Challenges:
  • Enhanced due diligence and valuation requirements
  • New sub-asset classes and specialised lending
• Qualitative Survey: 177 institutions participated, with 174 also participating in QIS data collection
• Quantitative Data Collection: 234 institutions participated, with 189 included in the cumulative analysis due to data quality

Conclusion

The EBA's assessment highlights the significant impact of Basel III reforms on capital requirements, particularly for large and systemically important institutions. The reforms introduce a more risk-sensitive framework, which affects various asset classes and business models. The output floor and CVA framework are key drivers of the capital requirements increase. Policy recommendations focus on addressing these impacts while ensuring consistency and financial stability across the EU and globally.