EU banks report no average shortfall under post-crisis capital rules

Listen to this article

00:00
00:00

Banks across the European Union for the first time have met international post-crisis rules on how much capital they must hold, reporting no average shortfall, according to official statistics.

The European Banking Authority, the EU’s supervisor of supervisors, said on Tuesday that banks they had sampled complied with regulatory minimums around the safest form of capital, known as Common Equity Tier 1. The EBA said there was no shortfall when looking at whether EU banks met global minimum capital requirements plus an extra safety buffer.

But the figures are averages — meaning that there are some outliers.

“On average, European banks largely fulfil the future regulatory capital requirements, with only a very small number of banks exhibiting potential capital shortfalls,” the EBA said. “The shortfall amounts constitute only a very minor fraction of the amounts observed at the beginning of the monitoring period (mid‐2011), and the difference between the current and full implementation capital ratios has been shrinking continuously, albeit recently this trend has been slowing down.”

A similar EBA survey — but with more banks included — in September reported that banks across the EU still needed an extra €0.4bn before meeting the CET1 target, itself an improvement on previous years. Global rules were put in place in 2010, but the EU’s version only took effect in 2014.

Banks’ total average CET1 ratio stood at 12.8 per cent, the EBA said. It sampled 164 banks from 18 EU countries, including Italy, Portugal and Greece.

But the EBA’s survey does not take into account new rules coming down the pipeline from global standard-setters, including an overhaul agreed to last year of how banks treat the risk of the bonds, commodities and other assets they hold in the short term to facilitate clients’ trading.

The EU has also been a vocal critic of mooted plans by the Basel Committee on Banking Supervision around banks’ calculations of their credit and operational risk. Key meetings around those reforms are scheduled for next month.

The EBA calculated the CET1 ratio average by dividing all the sample banks’ CET1 capital by the total of their risk-weighted assets, rather than calculating an unweighted average, arguing this method gave a more representative approach.

While European banks also showed some improvement. there is still some way to go before they meet liquidity rules that come into force in 2019. For example, there is still an overall shortfall of €158.7bn before they meet the so-called Net Stability Funding Ratio. In September the EBA reported the shortfall as standing above €240bn.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.