New ECB rules that lower the standards for which bonds count toward a bank's mandatory buffer will result in an average reduction in capital requirements equal to 90 basis points of European banks' core equity Tier 1 requirements, Reuters reported Dec. 12, citing Andrea Enria, chairman of the ECB's supervisory board.
Enria told the European Parliament that the reduction will stem from the change allowing banks to rely on lower-quality additional Tier 1 and Tier 2 capital, which is now available at favorable conditions.
Enria added that the ECB would see to it that capital charges are not duplicated as a result of the Basel III rules that levy a minimum capital requirement on large banks that use their own models to calculate risk, or "output floor."
"We could sterilize the purely arithmetic effect of the increase in risk-weighted assets generated by the output floor," Enria told the Parliament. However, he also said that the effects of the Basel III standards "cannot, and should not, be fully compensated" as they were introduced to avoid a repeat of the 2008 financial crisis.