Global banks are continuing to bolster their capital positions and are now in compliance with the minimum capital standards set under new Basel III capital adequacy rules, according to a report from the Basel Committee on Banking Supervision published on Tuesday.
However, banks are still falling short of the higher target levels established in the new capital regime.
Based on data as of December 31, 2014, all large internationally active banks now meet the risk-based minimum capital requirements of 4.5% under Basel III, as well as the tier one common equity (CET1) target level of 7.0%, the report says.
The 100 so-called “Group 1 banks” in the research are defined as large, internationally active banks, with Tier 1 capital of at least €3 billion ($4.5 billion). According to the report, these banks have also reduced their capital shortfalls relative to higher Tier 1 capital targets of 8.5%, from €18.6 billion ($27.9 billion) to €6.5 billion ($9.75 billion), and the shortfall relative to the total capital target of 10.5% has decreased from €78.6 billion ($117.9 billion) to €40.6 billion ($60.9 billion).
The research also found that that there is now no capital shortfall for so-called Group 2 banks (121 smaller banks that were also examined), based on a Tier 1 minimum of 4.5%. For a target level of 7.0%, the shortfall narrowed from €1.8 billion ($2.7 billion) to €1.5 billion ($2.3 billion) since the previous report.
The average tier 1 capital ratios under the Basel III framework across the same sample of banks are 11.1% for Group 1 banks and 12.3% for Group 2 banks.
The report also looked at the banks adherence to new liquidity requirements under Basel III. The minimum Liquidity Coverage Ratio (LCR) requirement is initially set at 60%, and will rise in equal annual steps to reach 100% in 2019.
The weighted average LCR for the Group 1 banks it reviewed was 125%, the report says, up from 121% six months earlier. For Group 2 banks, the weighted average LCR was 144%, up from 140% six months earlier. For banks in the sample, 85% reported an LCR that met or exceeded 100%, while 98% reported an LCR at or above 60%.
Combined shortfall amounts, which includes both risk-based capital and Tier 1 leverage ratio requirements, results in a Tier 1 capital shortfall of €3.1 billion ($4.7 billion) for Group 1 banks at the minimum level. At the target level, the capital shortfall rises by €1.6 billion ($2.4 billion), from €6.5 billion ($9.8 billion) to €8.1 billion ($12.2 billion), when the Basel III leverage ratio requirement is included. And, this also increases the total capital shortfall from from €47.2 billion ($70.8 billion) to €48.8 billion ($73.2 billion) at the target level. For Group 2 banks, the inclusion of the Basel III leverage ratio boost the total capital shortfalls at the target level by €2.6 billion ($3.9 billion), from €12.9 billion ($19.4 billion) to €15.5 billion ($23.3 billion).
The Basel III regime also includes a longer-term structural liquidity standard, known as the Net Stable Funding Ratio (NSFR). The weighted average NSFR for the Group 1 bank sample was 111%, the report says, and for Group 2 banks the average NSFR was 114%. Three quarters (75%) of the Group 1 banks, and 85% of the Group 2 banks, reported ratios that met or exceeded 100%, and 92% of Group 1 banks and 93% of Group 2 banks reported an NSFR of at least 90%.