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Basel: 10 global systemically important banks face €109B debt shortfall

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Basel: 10 global systemically important banks face €109B debt shortfall

Banks across the globe further improved their capital positions amid the upcoming full implementation of minimum requirements set in the wake of the 2008 global financial crisis, but 10 of the world's largest lenders still need to build up about €109.0 billion in capital that can absorb unexpected losses, the Basel Committee on Banking Supervision said March 6.

Results of the Basel Committee's latest review of the implications of Basel III regulations on the banking sector showed that the so-called Group 1 banks, or internationally active banks with more than €3 billion in Tier 1 capital, recorded an average common equity Tier 1 ratio of 12.5% on a fully phased-in basis as of June 30, 2017, up from 12.3% as of Dec. 31, 2016. Of those, the 30 global systemically important banks, known as G-SIBs had a CET1 ratio of 12.4% at the end of June 2017, up from 12.3% at 2016-end.

Group 2 banks, or those that have less than €3 billion in Tier 1 capital or are not internationally active, saw their CET1 ratios rise to 14.7% from 13.4% over the same period. They also reduced their shortfalls in target Additional Tier 1 capital and Tier 2 capital to about €100 million each as of June 30, 2017, from €3.1 billion and €1.2 billion, respectively, at the end of 2016.

On the leverage side, Group 1 banks maintained their average leverage ratio at 5.8%, while Group 2 banks recorded an uptick to 5.6% from 5.5%. G-SIBs saw their leverage ratios tick down to 5.7% from 5.8%.

The capital requirements are expected to be fully phased in by Jan. 1, 2019. The recent finalization of the Basel III reforms, dubbed Basel IV by the banking industry, is not yet reflected in the results, the Basel Committee noted.

Additionally, the Basel Committee found that 10 of the 25 G-SIBs that reported data on their total loss-absorbing capacity have a combined shortfall of €109.0 billion at the end of June 2017 when applying minimum requirements that take effect in 2022, compared with a shortfall of €116.4 billion six months prior. A G-SIB must maintain TLAC of at least 18% of its risk-weighted assets and at least 6.75% of its leverage ratio denominator by 2022.

The Basel Committee used data from 193 banks, of which 106 are classified as Group 1 and the remaining 87 are classified as Group 2.