Highlights of the Basel III monitoring exercise as of 31 December 2023

To assess the impact of the Basel III framework on banks, the Basel Committee on Banking Supervision monitors the effects and dynamics of the reforms. For this purpose, a semi-annual monitoring framework has been set up for the risk-based capital ratio, the leverage ratio and liquidity metrics, using data collected by national supervisors on a representative sample of institutions in each country. Since the end-2017 reporting date, this report has also captured the effects of the Committee's finalisation of the Basel III reforms.¹ This report summarises the aggregate results using data as of 31 December 2023.² The Committee believes that the information contained in the report will provide relevant stakeholders with a useful benchmark for analysis.

Information considered for this report was obtained from voluntary and confidential submissions of data from individual banks and their national supervisors. At the jurisdictional level, there may be ongoing mandatory data collection, which also feeds into this report. Data were included for 180 banks, including 118 large internationally active ("Group 1") banks, among them 29 global systemically important banks (G-SIBs), and 62 other ("Group 2") banks.³ Members' coverage of their banking sector is very high for Group 1 banks, reaching 100% coverage for some countries, while coverage is lower for Group 2 banks and varies by country.

In general, this report does not consider any transitional arrangements such as grandfathering arrangements. Rather, the estimates presented assume full implementation of the Basel III requirements based on data as of 31 December 2023. No assumptions have been made about banks' profitability or behavioural responses, such as changes in bank capital or balance sheet composition, since this date or in the future. Furthermore, the report does not reflect any additional capital requirements under Pillar 2 of the Basel III framework or any higher loss absorbency requirements for domestic systemically important banks. Nor does it reflect any countercyclical capital buffer requirements.

• Compared with the end-June 2023 reporting period, the average Common Equity Tier 1 (CET1) capital ratio under the current Basel III framework increased from 12.9% to 13.1% for Group 1 banks in H2 2023.
• The average impact of the Basel III framework on the Tier 1 minimum required capital (MRC) of Group 1 banks is lower (+1.3%) when compared with the 2.4% increase at end-June 2023. The average increase for G-SIBs is 0.2%.⁴
• There is no capital shortfall under the final Basel III framework compared with €3.3 billion for Group 1 banks in H1 2023.
• Applying the 2022 minimum total loss-absorbing capacity (TLAC) requirements and the current Basel III framework, two of the 23 G-SIBs reporting TLAC data reported an aggregate incremental shortfall of €26.0 billion.
• The average Liquidity Coverage Ratio (LCR) of Group 1 banks is stable at 138.4% compared with the last reporting date, while the average Net Stable Funding Ratio (NSFR) decreased from 123.9% to 122.6%.
• Group 2 banks' results based on the unbalanced sample should not be compared with the previous period due to significant changes in the sample.

• The balanced data set for Group 1 banks showed a slight increase in current Basel III capital ratios in H2 2023, on par with the results of the end-December 2022 exercise, driven by an increase in Tier 1 capital of a larger magnitude than the increase in risk-weighted assets (RWA). The overall CET1 capital ratios for Group 1 banks in the balanced data set were 13.1% in December 2023.
• Currently, the Tier 1 capital ratios are higher in Europe than in the Americas and the rest of the world region. However, this relationship was the reverse from 2011 to 2014.

• For Group 1 banks, the Tier 1 MRC would increase by 1.3%, following the full phase-in of the final Basel III standards. The increase in the MRC is underpinned by the incremental impact of leverage ratio requirements of 0.3% and an increase of 1.0% in risk-based components. The increase in risk-based components is mainly driven by the output floor (+1.4%) and market risk (+0.9%), partially compensated by credit risk (–1.2%).
• The average impact of the final Basel III framework on Group 1 banks, at +1.3%, is 110 basis points lower than at end-June 2023 (+2.4%).⁵
• The impact on MRC across regions varies considerably for Group 1 banks, with a very moderate increase in the Americas (+0.3%), a reduction in the rest of the world region (–0.2%) and, in contrast, a strong increase in MRC for European banks (+5.0%).
• For Group 2 banks, the overall 8.0% increase in Tier 1 MRC is driven by an increase in the risk-based measure of 10.9%, stemming mainly from credit risk (+5.4%) and the output floor (+3.2%), which is partially offset by a reduction in leverage ratio MRC (–2.9%).

• For the balanced data set of Group 1 banks, the leverage ratio was stable compared with the previous period. This contrasts with the sharp decrease that started at end-June 2021, particularly for the Americas.
• Leverage ratios for Group 1 banks are still lower in Europe (5.0%) than in the Americas (5.9%) and the rest of the world (6.8%).
• For the unbalanced data set at the end-December 2023 reporting date, the average fully phased-in final Basel III Tier 1 leverage ratios are 6.1% for Group 1 banks, 6.0% for G-SIBs and 6.7% for Group 2 banks.

• For this reporting date, there is no regulatory capital shortfall for any bank in the sample, compared with €3.3 billion at end-June 2023. This result is not driven by a change in the sample.

• From end-June 2011 to end-December 2023, the level of Group 1 banks' CET1 capital increased by 141% from €1,644 billion to €3,969 billion. Since end-June 2023, Group 1 CET1 capital has increased by €116 billion (or 3.0%).
• Over H2 2023, CET1 capital increased in the Americas and the rest of the world. While CET1 capital in the rest of the world has increased by more than 200% since June 2011, the increases in Europe and the Americas have been more limited, at 74% and 98%, respectively.
• Overall, profits after tax decreased for the Group 1 banks in the sample and stood at €240.9 billion in H2 2023, about in line with the profits from one year ago. The dividend payout ratio stood at 32.2%, which is the same as in the previous year.

• Annual after-tax profits for the Group 1 banks (ie summed up over two consecutive reporting dates) increased significantly in Europe (+58.7%), while they remained largely flat in the Americas and the rest of the world compared with the 12-month period ending December 2022. The significant spike in Europe in H1 2023 is driven by a merger between two banks.
• Compared with the previous reporting date, the annual dividend payout ratio has decreased in Europe, has increased in the Americas and has been largely stable in the rest of the world. It is significantly below the record-high ratios observed in 2019 and 2020 in the Americas, while it is at pre-pandemic levels in Europe and the rest of the world.

• As of December 2023 and for a balanced data set of Group 1 banks, non-securitisation credit risk⁶ continues to be the dominant portion of overall MRC, on average covering 72.8% of total MRC. However, credit risk's share has declined significantly to 76.4% when compared with end-June 2011. Among the non-securitisation credit risk asset classes, the share of MRC for corporate exposures increased from 28.9% at end-June 2011 to 34.4% at the current reporting date.
• The share of operational risk in MRC increased sharply from 7.5% at the end of June 2011 to 16.3% at the end of 2018 and then decreased to reach 14.2% at the current reporting date. The increase in the early 2010s was attributed in large part to the surge in the number and severity of operational risk events during and after the financial crises, which are factored into the calculation of MRC for operational risk under the advanced measurement approach. More recently, there has been some "fading out" of the financial crisis losses so that in 2020, the lowest loss level of the previous 10 years is observed. This explains the latest decrease in capital requirements, especially for the banks heavily affected in the financial crisis. In contrast, losses triggered by the Covid-19 pandemic are not yet having a significant impact on the loss severity level, but this may change given that the pandemic is still ongoing.
• The share of MRC for securitisation exposures declined from 6.5% to 2.6% between June 2011 and December 2023.

• The weighted average LCR at end-December 2023 is 138.4% for Group 1 banks and 201.4% for Group 2 banks.
• In the current reporting period, three Group 1 banks had an LCR below 100% and hence a shortfall (ie the difference between high-quality liquid assets and net cash outflows), which amounts to €13.5 billion.
• The weighted average NSFR was 122.6% for Group 1 banks and 133.9% for Group 2 banks at end-December 2023.
• All banks reported an NSFR that exceeded 100%.

• For a balanced data set of Group 1 banks, all but three banks meet a 100% LCR at end-December 2023, resulting in an aggregate shortfall of €11.2 billion. The shortfall decreased by €5.0 billion since June 2023. The average LCR for this sample decreased to 137.4% at end-December 2023 compared with 139.1% in the previous reporting period. Banks in the sample did not experience drops in the LCR during the turmoil that some banks outside the monitoring sample experienced.
• There was again no agreggate NSFR shortfall for the balanced data set of Group 1 banks. The average NSFR for the same sample of banks decreased slightly from 123.8% to 123.2% in December 2023.
• Both LCR and NSFR were above pre-pandemic levels at the reporting date.

• For a balanced data set of Group 2 banks, the LCR shortfall has remained at zero since June 2017. The average LCR for the same sample of banks increased significantly by 15.6 percentage points to 194.1% in December 2023, caused by a significant reduction in net outflows compared with the last reporting date.
• The aggregate NSFR shortfall remained at zero for the balanced data set of Group 2 banks. The average NSFR for the same sample of banks increased slightly by 0.8 percentage points to reach 125.8% in December 2023.

• Since 2019, the weighted average LCR for both Europe and the rest of the world has largely been above 140%, while the average LCR for the Americas has been around 121%. While Europe and the Americas initially had lower average LCRs compared with the rest of the world, the average LCRs of Europe and the rest of the world tended to gradually converge before the onset of the pandemic. The regions with lower end-2012 average ratios saw significant increases, in particular between end-2012 and June 2014, and Europe has seen such increases again since the start of the pandemic. The increase in Europe was reversing between June 2021 and June 2022, although since then the LCR of European banks is still above end-2019 levels.
• The weighted average NSFR at end-December 2023 for Group 1 banks in each of the three regions was well in excess of 100%. The average NSFR in Europe increased from 121.4% at end-June 2023 to 121.7% at end-December 2023. After a significant drop during H1 2022, the NSFR of banks in the Americas continues to drop, to 119.3% at end-December 2023.

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¹   See Basel Committee on Banking Supervision, High-level summary of Basel III reforms (https://www.bis.org/bcbs/publ/d424_hlsummary.pdf), December 2017; Basel Committee on Banking Supervision, Basel III: Finalising post-crisis reforms (https://www.bis.org/bcbs/publ/d424.htm), December 2017.

²   A list of previous publications is included in the Annex.

³   Group 1 banks are those that have Tier 1 capital of more than €3 billion and are internationally active. All other banks are considered Group 2 banks. Not all banks provided data relating to all parts of the Basel III framework.

⁴   A rise in the capital ratio between the current and final Basel III frameworks together with a positive change in minimum required capital (MRC) might seem non-intuitive at first glance. The main reason for this result is sample differences between both analyses due to data availability and data quality constraints.

⁵   The end-June 2023 value published in the March 2024 version of this report stated an MRC increase of 4.9%. This figure has been restated since G-SIB buffers that are already implemented in national leverage ratio frameworks are now reflected in the MRC baseline.

⁶   Here, non-securitisation credit risk is defined as the sum of corporate, bank, sovereign, retail, equity and other credit as illustrated in the graph. Note that the presentation differs from previous reports, where credit risk included securitisation.