European Union (EU) banks are already in compliance with the stricter global capital rules set by the Basel Committee, according to the European Banking Authority (EBA). The EBA stated that EU banks only need to find an additional 600 million euros ($635.8 million) by the 2028 deadline to meet the requirements. The Basel Committee introduced the additional capital rules in 2017 to ensure banks have sufficient reserves to withstand economic shocks, as a response to the 2008 global financial crisis.
The EBA recently published the results of its monitoring exercise, which assessed how 157 banks across the EU were implementing the Basel rules at the end of 2022. The report revealed that EU banks’ minimum Tier 1 capital requirement would increase by 9.0% by the full implementation date in 2028. To fully comply with the new framework, EU banks would need an additional 0.6 billion euros of Tier 1 capital.
The Basel Committee has set a 2028 deadline for implementing the remaining rules, which will be rolled out in the EU from January 2025. However, EU policymakers have proposed longer phase-ins for some rules and temporary waivers for others. These proposals would reduce the core capital shortfall to an estimated 240 million euros, according to the EBA.
In comparison, the United States has suggested starting its “Basel Endgame” six months later and completing it by 2028. Yet, banks in the US are expressing concerns about the significant rise in capital burdens due to these rules. Similarly, banks in Britain are lobbying for the Bank of England to align its rollout start date with that of the US and to soften some of the rules in line with the EU’s approach. The Bank of England is expected to announce its final Basel Endgame rules in 2024.
Meanwhile, the Basel Committee stated that global shortfalls among banks for meeting full implementation of its core capital rules stood at approximately 3 billion euros at the end of December 2022. This figure represents a significant decrease from the 7.8 billion euros reported six months earlier.
It is important to note that the aggregate shortfalls both globally and in the EU represent only a fraction of banks’ total capital buffers and earnings. These findings indicate that EU banks are well-prepared to meet the remaining Basel requirements and strengthen their defenses against future economic crises. The ongoing discussions among regulators and policymakers regarding the timing and specifics of the rules demonstrate a commitment to strike a balance between ensuring financial stability and minimizing the burden on banks.
More detail via Investing.com here… ( Image via Investing.com )