Basel III monitoring reveals improved bank liquidity through H1 2021
21 February 2022 Switzerland
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Banks’ risk-based capital ratios remained roughly constant during the first half of 2021, despite continuing economic disruption created by the COVID-19 pandemic, according to the latest Basel III monitoring data released today by the Basel Committee on Banking Standards (BCBS).
Average Common Equity Tier 1 (CET1) capital ratio under the initial Basel III framework remained unchanged at 13.2 per cent for Group 1 banks over this timeframe.
For Group 2 banks, the CET1 capital ratio fell from 16.3 to 16.2 per cent for the six months to 30 June 2021.
Group 1 banks, under the BCBS reporting methodology, are banks that are internationally active and have Tier 1 capital of more than €3 billion. Group 2 banks have Tier 1 capital below €3 billion or are not active internationally.
Banks’ liquidity ratios strengthened during H1 2021, with the liquidity coverage ratio (LCR) for Group 1 banks improving from 142.8 to 143.8 per cent, according to the survey.
For Group 2 banks, LCR improved from 208.3 per cent to 224.6 per cent. This reflects the minimum stock of high-quality liquid assets that a bank must hold as liquidity reserves to cover net cash outflows under a 30-day stress scenario.
BCBS reports that seven Group 1 banks had an LCR of less than 100 per cent during this reporting period, which was largely the result of banks drawing on their LCR reserves during the COVID-19 pandemic. All Group 2 banks had an LCR well above the minimum 100 per cent ratio for the period.
Net stable funding ratios (NSFR) improved over the same period from 123.0 to 124.5 per cent for Group 1 banks and 125.7 to 129.6 per cent for Group 2 banks.
In contrast to LCR, which measures liquidity coverage according to a 30-day stress scenario, the NSFR indicates a bank’s ability to withstand funding risk over a longer time horizon.
Target capital shortfalls under the fully-phased in final Basel III framework contracted from 6.1 per cent to 2.3 per cent for Group 1 banks for the H1 2021 period. For Group 2 banks, the capital shortfall also declined, from 1.8 to 1.3 per cent.
Bank leverage under the fully-phased in final Basel III framework increased for the Group 1 bank sample over the period, with the leverage ratio — which reflects a bank’s capital (typically Tier 1 capital) relative to its exposure — dipping 0.3 per cent to 6.2 per cent. The largest reduction, of 1.1 per cent, was evident in the Americas. This, the report states, results from a significant increase in the leverage ratio exposure measure — reflecting the end of temporary exclusions from the leverage ratio exposure measure applied by some jurisdictions during the pandemic.
This latest Basel III monitoring exercise found that three global systemically-important banks (G-SIBs) reported a total loss-absorbing capacity (TLAC) shortfall of €24.2 billion. This metric reflects the ability of a G-SIB to withstand losses without falling below regulatory minimum requirements and requiring recapitalisation or resolution procedures.
The Basel III monitoring exercise is conducted by the BCBS on a semiannual basis, gathering data to support risk-based capital ratio, leverage ratio and liquidity metrics utilising a representative sample of institutions in each country.
Data for the H1 2021 reporting period was supplied for 172 banks. This includes 110 large and internationally active banks (classified as the Group 1 bank sample), of which 30 are G-SIBs, and 62 other banks (classified as Group 2 banks).
Average Common Equity Tier 1 (CET1) capital ratio under the initial Basel III framework remained unchanged at 13.2 per cent for Group 1 banks over this timeframe.
For Group 2 banks, the CET1 capital ratio fell from 16.3 to 16.2 per cent for the six months to 30 June 2021.
Group 1 banks, under the BCBS reporting methodology, are banks that are internationally active and have Tier 1 capital of more than €3 billion. Group 2 banks have Tier 1 capital below €3 billion or are not active internationally.
Banks’ liquidity ratios strengthened during H1 2021, with the liquidity coverage ratio (LCR) for Group 1 banks improving from 142.8 to 143.8 per cent, according to the survey.
For Group 2 banks, LCR improved from 208.3 per cent to 224.6 per cent. This reflects the minimum stock of high-quality liquid assets that a bank must hold as liquidity reserves to cover net cash outflows under a 30-day stress scenario.
BCBS reports that seven Group 1 banks had an LCR of less than 100 per cent during this reporting period, which was largely the result of banks drawing on their LCR reserves during the COVID-19 pandemic. All Group 2 banks had an LCR well above the minimum 100 per cent ratio for the period.
Net stable funding ratios (NSFR) improved over the same period from 123.0 to 124.5 per cent for Group 1 banks and 125.7 to 129.6 per cent for Group 2 banks.
In contrast to LCR, which measures liquidity coverage according to a 30-day stress scenario, the NSFR indicates a bank’s ability to withstand funding risk over a longer time horizon.
Target capital shortfalls under the fully-phased in final Basel III framework contracted from 6.1 per cent to 2.3 per cent for Group 1 banks for the H1 2021 period. For Group 2 banks, the capital shortfall also declined, from 1.8 to 1.3 per cent.
Bank leverage under the fully-phased in final Basel III framework increased for the Group 1 bank sample over the period, with the leverage ratio — which reflects a bank’s capital (typically Tier 1 capital) relative to its exposure — dipping 0.3 per cent to 6.2 per cent. The largest reduction, of 1.1 per cent, was evident in the Americas. This, the report states, results from a significant increase in the leverage ratio exposure measure — reflecting the end of temporary exclusions from the leverage ratio exposure measure applied by some jurisdictions during the pandemic.
This latest Basel III monitoring exercise found that three global systemically-important banks (G-SIBs) reported a total loss-absorbing capacity (TLAC) shortfall of €24.2 billion. This metric reflects the ability of a G-SIB to withstand losses without falling below regulatory minimum requirements and requiring recapitalisation or resolution procedures.
The Basel III monitoring exercise is conducted by the BCBS on a semiannual basis, gathering data to support risk-based capital ratio, leverage ratio and liquidity metrics utilising a representative sample of institutions in each country.
Data for the H1 2021 reporting period was supplied for 172 banks. This includes 110 large and internationally active banks (classified as the Group 1 bank sample), of which 30 are G-SIBs, and 62 other banks (classified as Group 2 banks).
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