Tougher capital rules for banks drawn up after the financial crisis are working, according to figures from the Basel Committee of regulators, which show top banks are in more robust health than in 2015.
The latest in regular updates from the committee on the state of the global banking market assumes all its rules are in place, including the final elements of the Basel III requirements agreed upon in December 2017. The figures show that for 111 large internationally active banks with Tier 1 capital of more than €3 billion, including all 30 global systemically important institutions, the capital shortfall at the end of 2017 was €25.8 billion. This is more than 70% lower than it was at the end of 2015.
The core equity capital ratio, CET1, of the banks also rose to 12.9% by December 2017 from 12.5% at the end of the previous reporting period in June 2017, which is significantly higher than precrisis levels.
Although overall credit risk continued to make up the dominant portion of overall minimum required capital held by banks, its share had declined while the proportion of capital held for operational risks such as misconduct and cyberattacks had more than doubled to 16.4% from 7.8% at the end of June 2011.
The initial Basel III minimum capital requirements are due to be fully phased in by January 1, 2019.
The shortfall in total loss-absorbing capacity, or TLAC, a class of debt which ensures that banks are able to implement an orderly resolution in the event they exhaust other capital sources, had also improved, the Bank for International Settlements said. Eight of the systemically important lenders in the sample had a combined incremental TLAC shortfall of €82 billion at the end of December 2017, compared to €109 billion at the end of June 2017.