The world's largest banks will need to plug a larger total capital shortfall to meet final regulatory requirements fully taking effect starting 2027, according to the Basel Committee on Banking Supervision.
Internationally active banks with more than €3 billion in Tier 1 capital had an average common equity Tier 1 ratio of 11.7% as of June 30, 2018, under the final Basel III minimum capital requirements due to be fully phased in from Jan. 1, 2027. That marked a drop from 12.2% as of Dec. 31, 2017, and meant that the banks must raise €7.0 billion in CET1 capital to meet requirements, up from a shortfall of €5.2 billion six months previously.
Large lenders also recorded a shortfall in Additional Tier 1 capital of €10.6 billion at the end of June 2018, up from €7.3 billion at 2017-end, while their Tier 2 capital shortfall declined over the period to €12.6 billion from €13.3 billion. Overall, the target total capital shortfall amounted to €30.1 billion, up from €25.8 billion as of Dec. 31, 2017.
Of these lenders, the 29 global systemically important banks, which face additional capital requirements due to their significant size and potential impact on financial markets, must alone raise €29.3 billion in total capital to meet the final Basel III requirements, up from a shortfall of €23.7 billion at the end of 2017.
When applying the 2022 minimum requirements for total loss-absorbing capacity, eight of the 24 G-SIBs that reported TLAC data had a combined shortfall of €108.8 billion as of June 30, 2018, compared with €143.6 billion six months ago. However, there is no significant difference with respect to the range of shortfalls expressed as a percentage of risk-weighted assets.
The number of banks reporting a TLAC shortfall was six under the initial Basel III standards.
G-SIBs must hold loss-absorbing capital equivalent to 16% of their risk-weighted assets as of 2019, with the requirement rising to 18% starting 2022.
Meanwhile, banks also met or exceeded the 100% minimum requirement for liquidity coverage ratios, with the largest lenders having an average ratio of 135.1% as of June 30, 2018. The 100% minimum liquidity coverage ratio requirement applies from Jan. 1, 2019, with the requirement having been phased in gradually since 2015.
Banks reported an average leverage ratio of 5.8%, unchanged from Dec. 31, 2017.