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EBA calls for full implementation of Basel III bank rules

The European Banking Authority called for the full implementation of the final Basel III global bank capital rules in the EU, saying the reforms will contribute to the banking sector's credibility and ensure a well-functioning global banking market.

The reforms, which require banks to hold significantly more capital following the financial crisis, were drafted by the Basel Committee on Banking Supervision in December 2017.

Full implementation of the rules could increase the minimum capital requirement by 24.4% on average under conservative assumptions, the EBA said, implying an aggregate shortfall in total capital of about 135.1 billion. The majority of the capital impact occurs in large globally active banks, it said.

The EBA's recommendation to fully implement the rules, made in response to a call for advice from the European Commission, has dashed banks' hopes for relaxed regulations, Reuters and Bloomberg News reported.

The credibility banks will gain from complying with the rules far outweighs the overall limited regulatory capital gain they will derive from "certain EU deviations" in implementing the final Basel III framework, the EBA said. The agency added that the overall package of revisions to the reforms should be transposed into EU laws.

The commission could accept the EBA's recommendation in full or in part when it proposes legislation to implement the final framework, Reuters said.

Improvements

The EBA welcomed improvements introduced in the final Basel III package, saying the reforms will boost financial stability and allow the continued use of risk-sensitive approaches. The improvements include constraints to banks' internal modeling and the introduction of a higher degree of risk sensitivity in standardized approaches to measuring credit and operational risks.

Cross-border and local universal banks, along with mortgage banks, account for the highest increase in capital requirements and point to the output floor of the reforms as the main driver of the impact, the EBA said. The output floor effectively limits the way banks use their internal models to calculate risk weightings on assets. This allows banks to assign a risk-weighting of no less than 72.5% of the calculation achieved by the standardized approach set by regulators.