Results of the Basel III monitoring exercise as of 31 December 2011

This report presents the results of the Basel Committee's Basel III monitoring exercise. The study is based on rigorous reporting processes set up by the Committee to periodically review the implications of the Basel III standards for financial markets; the first results of the exercise based on June 2011 data had been published in April 2012. A total of 209 banks participated in the study, including 102 Group 1 banks (ie those that have Tier 1 capital in excess of €3 billion and are internationally active) and 107 Group 2 banks (ie all other banks).

While the Basel III framework sets out transitional arrangements to implement the new standards, the monitoring exercise results assume full implementation of the final Basel III package based on data as of 31 December 2011 (ie they do not take account of the transitional arrangements such as the phase in of deductions). No assumptions were made about bank profitability or behavioural responses, such as changes in bank capital or balance sheet composition. For that reason the results of the study are not comparable to industry estimates.

The study finds that based on data as of 31 December 2011 and applying the changes to the definition of capital and risk-weighted assets, the average common equity Tier 1 capital ratio (CET1) of Group 1 banks was 7.7%, as compared with the Basel III minimum requirement of 4.5%. In order for all Group 1 banks to reach the 4.5% minimum, an increase of €11.9 billion CET1 would be required. The overall shortfall increases to €374.1 billion to achieve a CET1 target level of 7.0% (ie including the capital conservation buffer); this amount includes the surcharge for global systemically important banks where applicable. As a point of reference, the sum of profits after tax and prior to distributions across the same sample of Group 1 banks in 2011 was €356 billion. Compared to the June 2011 exercise, the aggregate CET1 shortfall with respect to the 4.5% minimum for Group 1 banks has reduced by €26.9 billion. At the CET1 target level of 7.0%, the aggregate CET1 shortfall for Group 1 banks has reduced by €111.5 billion.

For Group 2 banks, the average CET1 ratio stood at 8.8%. In order for all Group 2 banks in the sample to meet the new 4.5% CET1 ratio, the additional capital needed is estimated to be €7.6 billion. They would have required an additional €21.7 billion to reach a CET1 target 7.0%; the sum of these banks' profits after tax and prior to distributions in 2011 was €24 billion.