Big banks had almost €500 billion capital shortfall‎: Basel

It found that, assuming full implementation of the final Basel III requirements, based on data from June 30, 2011, for all big banks to reach the 4.5% minimum common equity Tier 1 capital requirement (which takes effect in 2015), an increase of €38.8 billion would be required. And, the overall shortfall increases to €485.6 billion to achieve a target level of 7.0% (which includes the capital conservation buffer, a requirement that isn’t fully phased in until 2019).

The report notes that the sum of after-tax profits for the same sample of banks in the second half of 2010 and the first half of 2011 was €356.6 billion.

For the smaller banks included in the study, the additional capital needed to meet the 4.5% level is estimated to be €8.6 billion, and they would have required an additional €32.4 billion to reach the 7.0% target.

The survey also found that the average common equity Tier 1 ratio would decline from 10.2% under the existing capital rules to 7.1% under the Basel III rules for the large banks, and from 10.1% to 8.3% for the smaller banks.

Compared to current risk-weighted assets, total risk-weighted assets increase on average by 19.4% for large banks under the Basel III framework, it says. “This increase is driven largely by charges against counterparty credit risk and trading book exposures,” it notes, and securitization exposures are also a significant contributor to the increase.

The Committee also assessed the estimated impact of the new liquidity standards. Assuming banks were to make no changes to their liquidity risk profile or funding structure, as of June 2011, the weighted average liquidity coverage ratio for the large banks would have been 90%, and 83% for the smaller banks. The aggregate LCR shortfall is €1.76 trillion, it says, which represents approximately 3% of the €58.5 trillion total assets of the aggregate sample. Banks have until 2015 to meet the LCR standard.