Europe's largest banks will have to increase their total capital by €39.7 billion compared to their 2015 levels as of December 2015, following the adoption of new international banking standards by the Basel Committee on Dec. 7, the European Banking Authority said on the same day.
The changes will require an increase in Tier 1 combined capital of €34.4 billion on top of the 2015 base for the sample of 88 banks in 17 EU members states analyzed by the EBA.
"The reform has a limited aggregate impact on regulatory capital ratios and capital shortfalls," the European Central Bank-affiliated regulator said, adding that the so-called "output floor" of 72.5% that central bankers signed up to is the main driver of the increase.
The output floor announced Dec. 7 effectively limits the way banks use their internal models to calculate risk weightings on assets and means they can assign a risk-weighting of no less than 72.5% of the calculation achieved by the Standardized Approach set by regulators.
The 12 largest banks examined by the EBA will be the most affected, having to increase their risk-weighted CET1 ratios by 0.8% on average compared to where they stood in December 2015.
The entire group will see a CET1 ratio shortfall of 0.6%.
Meanwhile, the lenders will have to increase their Tier 1 capital, which includes some debt, by 12.9% on a weighted average from their end-2015 position, EBA data shows.

After a year's delay in negotiations over the rules, central bankers headed by ECB President Mario Draghi and Basel Committee head Stefan Ingves — who is also the chief of Sweden's central bank — resolved to limit the ability of banks to themselves calculate risks in their books by imposing the floor.
Internal models for estimating the probability of default in loans and other exposures made by banks have therefore been severely curtailed. These undisclosed formulas were widely criticized by investors for massaging the true risks taken by banks and artificially reducing their capital requirement.
"The focus of this exercise was not to increase capital ... it was to reduce unwarranted variability in risk weights. The focus was on rebuilding the credibility of regulation," Draghi told journalists as he announced the changes.
The EBA said that it "supports the aim of the global agreement to restore credibility and comparability of regulatory capital metrics."
"Strong international standards are an essential common yardstick that will support a safe and sound cross-border banking on a global scale," said Andrea Enria, chairperson of the EBA. "The EBA is committed to engaging with Competent Authorities and European co-legislators to ensure a successful implementation of the standards in the EU."
