Meeting Basel 3 requirements

Meeting Basel 3 requirements

The Basel Committee and the European Banking Authority (EBA) have published their latest monitoring of how banks are performing against the fully phased-in Basel 3 (or CRR/CRD4 in Europe) capital, leverage and liquidity standards, using data at end-2015.

Senior Advisor, EMA Regulatory Centre of Excellence

KPMG in the UK


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The table below summarizes the main results. Almost all major banks meet the minimum CET1 capital and leverage ratios. However, some banks still need to make further progress if they are to meet the forthcoming 100% minimum LCR (by 2019 under the Basel standard and by 2018 under EU rules) and NSFR requirements (by 2018). One bank in the Basel (not EBA) sample has an alarmingly low LCR of only 35%, well below the transitional minimum requirement of 60% for 2015, which rises to 70% in 2016.

  Basel Group 1 Of which Basel G-SIBs Shortfalls EBA Group 1 Shortfalls
Sample 100 large internationally active banks     45 internationally active banks with tier 1 capital in excess of EUR 3 billion   
CET1 ratio 11.8 11.7 None 12.4 Very small remaining shortfall.
Leverage ratio 5.6 5.6 None 4.7 None
LCR 125 124

One bank with an LCR of 35%.

Most (86%) banks already above 100% LCR.

Lowest G-SIB at 110%


All banks meet LCR of 70%.

Three do not meet 100%.

Lowest at 82%

NSFR 114 116

20% of banks below NSFR of 100%.

Lowest at 82%.

Lowest G-SIB at 90%.


40% of banks below NSFR of 100%.

Lowest at 79%

It may be observed that:

  • Major European banks are well behind major banks elsewhere in the world on the leverage ratio and the net stable funding ratio (NSFR).
  • Major European banks have improved their capital and leverage ratios by both increasing their capital resources and reducing their risk weighted assets (RWAs), whereas major banks elsewhere have maintained or even increased their RWAs.

“Basel 4” may in due course reveal significant shortfalls that are not covered in the Basel and EBA exercises:

  • The minimum CET1 capital ratio covers only the 4.5% absolute minimum, the capital conservation buffer of 2.5%, and any G-SIB capital surcharge. It does not cover any D-SIB capital surcharge, other systemic risk buffer, macro-prudential buffer, or Pillar 2 or stress-testing add-ons. Nor does it cover the impact of RWA inflation (from revised approaches to credit, market and operational risk, and any “capital floor”).
  • Similarly, the minimum leverage ratio is set at 3% (against tier 1 capital) and does not reflect any national super-equivalence (as in the US, UK, Netherlands and Switzerland).

So, this is a pure Basel 3 exercise that makes no allowance for what we are calling “Basel 4”.

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