European Union banks are making substantial progress in meeting stricter global capital requirements set by the Basel Committee, well in advance of the 2028 deadline.
According to the European Banking Authority (EBA), the shortfall currently stands at a mere 600 million euros ($635.8 million).
This achievement is a significant step towards enhancing the resilience of the EU banking sector.
The Basel Committee initiated these additional capital requirements in 2017 as part of its comprehensive overhaul of core mandatory buffers.
This revamp came in response to the global financial crisis of 2008, which necessitated bailouts for several struggling banks.
Now, the European Union, in collaboration with Britain and the United States, is in the process of incorporating the final Basel requirements into its regulatory framework.
The EBA’s latest report, published on Tuesday, provides insights into the compliance of 157 banks across the EU with Basel rules as of the end of 2022.
The report indicates that EU banks will require an additional 0.6 billion euros of Tier 1 capital to fully meet the new Basel framework by the 2028 implementation date.
This amounts to a 9.0% increase in the minimum Tier 1 capital requirement for European banks by 2028.
While Basel aims to have its remaining rules implemented by 2028, EU policymakers are considering extended phase-ins for some regulations and temporary waivers for others.
The planned rollout of these rules in the EU is scheduled to begin in January 2025.
In contrast, the United States has proposed a “Basel Endgame” plan starting six months later, with completion by 2028.
However, this proposal has faced opposition from banks that anticipate a substantial rise in capital requirements.
Meanwhile, British banks are urging the Bank of England to align its rollout start date with that of the United States and to relax certain rules in line with the EU’s approach.
The Bank of England is expected to unveil its final Basel Endgame rules in 2024.
In summary, EU banks have made commendable progress in meeting the stricter Basel capital requirements, significantly reducing the shortfall ahead of the 2028 deadline.
However, discussions on the timeline and implementation of these rules continue, with potential variations between the EU, the United States, and Britain.