BIS Basel III Monitoring Shows Reduced Capital Shortfalls

The Bank for International Settlements (BIS) published the results of its latest Basel III monitoring exercise on Thursday and revealed that the capital shortfalls of the large, internationally active banks have shrunk by 50%.

The Basel, Switzerland-based BIS, dubbed ‘the central banks’ central bank’, has conducted previous similar exercises at six-monthly intervals since April 2012.

The BIS analysed a total of 227 banks and divided them into two groups: Group 1 is comprised of 102 internationally active banks with Tier 1 capital of more than €3bn while Group 2 is composed of the remaining 125 financial institutions (FIs).

On the basis of the data used and which runs up to 30 2013, the BIS noted that at the common equity tier 1 (CET1) target level of 7.0%, the aggregate shortfall for Group 1 banks is €57.5bn, compared to €115.0bn on 31 December 2012.

Group 2 banks registered a CET1 target level shortfall of €27.7bn. As opposed to Group 1 banks, this group of FIs actually increased their capital shortfall by €2.1bn (£1.73bn). According to the BIS, this was ’caused by a small number of Group 2 banks within the sample’.

Basel III’s Liquidity Coverage Ratio (LCR) comes into effect on 1 January 2015. The minimum requirement will be set initially at 60% and then rise in equal annual steps to reach 100% in 2019. The weighted average LCR for the Group 1 bank sample was 114% on 30 June 2013, against 119% six months earlier. For Group 2 banks, the average LCR has increased from 126% to 132%. For banks in the sample, 72% reported an LCR that met or exceeded a 100% minimum requirement, while 91% reported an LCR at or above a 60% minimum requirement.

Basel III also includes a longer-term structural liquidity standard – the net stable funding ratio (NSFR). In January 2014, the Basel Committee published a consultative document on proposed revisions to the NSFR. While the most recent Basel III monitoring exercise collected NSFR data, the results were based on the original version of Basel III’s NSFR as published in December 2010. Results of the NSFR calculation were not in the latest monitoring report to avoid confusion with the revised NSFR issued by the Committee in January.

The Committee’s next Basel III monitoring exercise, which will be based on financial data as of December 2013, will include data related to the proposed revisions to the NSFR. The Committee expects to publish the results of that exercise later this year.

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