Highlights of the Basel III monitoring exercise as of 30 June 2023

To assess the impact of the Basel III framework on banks, the Basel Committee on Banking Supervision monitors the effects and dynamics of the reforms. For this purpose, a semi-annual monitoring framework has been set up for the risk-based capital ratio, the leverage ratio and liquidity metrics, using data collected by national supervisors on a representative sample of institutions in each country. Since the end-2017 reporting date, this report has also captured the effects of the Committee's finalisation of the Basel III reforms.¹ This report summarises the aggregate results using data as of 30 June 2023.² The Committee believes that the information contained in the report will provide relevant stakeholders with a useful benchmark for analysis.

Information considered for this report was obtained from voluntary and confidential submissions of data from individual banks and their national supervisors. At the jurisdictional level, there may be ongoing mandatory data collection, which also feeds into this report. Data were included for 177 banks, including 112 large internationally active ("Group 1") banks, among them 29 global systemically important banks (G-SIBs), and 65 other ("Group 2") banks.³ Members' coverage of their banking sector is very high for Group 1 banks, reaching 100% coverage for some countries, while coverage is lower for Group 2 banks and varies by country.

In general, this report does not consider any transitional arrangements such as grandfathering arrangements. Rather, the estimates presented assume full implementation of the Basel III requirements based on data as of 30 June 2023. No assumptions have been made about banks' profitability or behavioural responses, such as changes in bank capital or balance sheet composition, since this date or in the future. Furthermore, the report does not reflect any additional capital requirements under Pillar 2 of the Basel III framework or any higher loss absorbency requirements for domestic systemically important banks. Nor does it reflect any countercyclical capital buffer requirements.

• Compared with the end-December 2022 reporting period, the average Common Equity Tier 1 (CET1) capital ratio under the initial Basel III framework decreased from 13.1% to 12.9% for Group 1 banks in H1 2023.
• The average impact of the Basel III framework on the Tier 1 minimum required capital (MRC) of Group 1 banks is higher (+4.9%) when compared with the 3.1% increase at end-December 2022. The average increase for G-SIBs is 6.0%.
• Capital shortfalls under the final Basel III framework increased slightly in H1 2023 to €4.0 billion for Group 1 banks.
• Applying the 2022 minimum total loss-absorbing capacity (TLAC) requirements and the initial Basel III framework, only one of the 22 G-SIBs reporting TLAC data reported an aggregate incremental shortfall of €13.9 billion.
• The average Liquidity Coverage Ratio (LCR) of Group 1 banks rose from 137.3% to 138.6%, while the average Net Stable Funding Ratio (NSFR) decreased from 124.4% to 124.1%.
• Group 2 banks' results based on the unbalanced sample should not be compared with the previous period due to significant changes in the sample.

• The balanced data set for Group 1 banks showed a reduction in initial Basel III capital ratios in H1 2023, driven by an increase in risk-weighted assets (RWA) of a larger magnitude than the increase in Tier 1 capital. The overall CET1 capital ratios for Group 1 banks in the balanced data set were 13.0% in June 2023.
• Currently, the Tier 1 capital ratios are higher in Europe than in the Americas and the rest of the world region. However, this relationship was the reverse from 2011 to 2014.

• For Group 1 banks, the Tier 1 minimum required capital (MRC) would increase by 4.9%, following the full phase-in of the final Basel III standards. The marginal increase in the MRC is underpinned by the incremental impact of leverage ratio requirements of 2.9% and an increase of 2.1% in risk-based components. The increase in risk-based components is mainly driven by the output floor (+2.1%) and market risk (+0.9%), partially compensated by credit risk (-1.2%).
• The impact on MRC across regions varies considerably for Group 1 banks, with a moderate increase in the Americas (+1.3%), a reduction in the rest of the world region (-0.8%) and, in contrast, a strong increase in MRC for European banks (+18.3%).
• For Group 2 banks, the overall 0.6% reduction in Tier 1 MRC is driven by a reduction in leverage ratio MRC (–7.7%), partially offset by an increase in the risk-based measure of 7.2%, stemming mainly from credit risk (+2.4%) and the output floor (+4.6%).
• The average impact of the final Basel III framework on Group 1 banks, at +4.9%, is 180 basis points higher than at end-2022 (+3.1%).

• For the unbalanced data set at the end-June 2023 reporting date, the average fully phased-in final Basel III Tier 1 leverage ratios are 6.1% for Group 1 banks, 6.0% for G-SIBs and 6.6% for Group 2 banks.
• For the balanced data set of Group 1 banks, the leverage ratio was stable compared with the previous period. This contrasts with the sharp decrease that started at end-June 2021, particularly for the Americas.
• Leverage ratios are still lower in Europe (5.3%) than in the Americas (5.9%) and the rest of the world (6.7%).

• For this reporting date, Group 1 banks registered total regulatory capital shortfalls amounting to €4.0 billion, compared with €3.0 billion at end-December 2022.
• For Group 2 banks, the aggregate total capital shortfall was zero as at end-June 2023. However, this sample was significantly smaller than that reporting in December 2022, when the total amount of capital shortfalls of Group 2 banks was €1.1 billion.

• From end-December 2011 to end-December 2022, the level of Group 1 banks' CET1 capital increased by 134% from €1,660 billion to €3,886 billion. Since end-December 2022, Group 1 CET1 capital has increased by €106 billion (or 2.8%).
• Over H1 2023, CET1 capital increased slightly in all regions. While CET1 capital in the rest of the world is now more than three times its 2011 value, the increases in Europe and the Americas have been more limited, at 74% and 94% respectively.
• Overall, profits after tax increased for the Group 1 banks in the sample and stood at €278.9 billion in H1 2023, marking a new record high. The dividend payout ratio stood at 32.2%, slightly lower than in the previous year but in line with pre-pandemic levels.

• Annual after-tax profits for the Group 1 banks (ie summed up over two consecutive reporting dates) increased significantly in Europe and the rest of the world (+13.9% and +15.6%, respectively), while they decreased in the Americas (–4.0%) compared with the 12-month period ending June 2022. The significant spike in Europe in H1 2023 is driven by a merger between two banks.
• Since the previous reporting date, the annual dividend payout ratios have decreased in all regions. They are significantly below the record-high ratios observed in 2019 and 2020 in the Americas, while they are at pre-pandemic levels in Europe and the rest of the world.

• As of June 2023 and for a balanced data set of Group 1 banks, credit risk⁴ continues to be the dominant portion of overall MRC, on average covering 66.7% of total MRC. However, credit risk's share has declined significantly from 75.6% at end-June 2011.
• The share of operational risk in MRC increased sharply from 7.6% at the end of June 2011 to 16.9% at the end of 2018 and then decreased slightly to reach 16.1% at the current reporting date. The increase in the early 2010s was attributed in large part to the surge in the number and severity of operational risk events during and after the financial crises, which are factored into the calculation of MRC for operational risk under the advanced measurement approach. More recently, there has been some "fading out" of the financial crisis losses so that in 2020, the lowest loss level of the previous 10 years is observed. This explains the latest decrease in capital requirements, especially for the banks heavily affected in the financial crisis. In contrast, losses triggered by the Covid-19 pandemic are not yet having a significant impact on the loss severity level, but this may change given that the pandemic is still ongoing.
• Among the credit risk asset classes, the share of MRC for corporate exposures increased over the observed period, from 32.5% at end-June 2011 to 37.3% at the current reporting date. The share of MRC for securitisation exposures declined from 5.8% to 3.1% between June 2011 and June 2023.

• The weighted average LCR at end-June 2023 is 138.6% for Group 1 banks and 191.3% for Group 2 banks.
• In the current reporting period three Group 1 banks had an LCR below 100% and hence a shortfall (ie the difference between high-quality liquid assets and net cash outflows), which amounts to €19.6 billion.
• The weighted average NSFR was 124.1% for Group 1 banks and 135.0% for Group 2 banks at end-June 2023.
• All banks reported an NSFR that exceeded 100%.

• For a balanced data set of Group 1 banks, all but three banks meet a 100% LCR at end-June 2023, resulting in an aggregate shortfall of €16.4 billion. The shortfall increased by €5.4 billion since December 2022. The average LCR for this sample increased to 139.2% at end-June 2023 compared with 135.6% in the previous reporting period. Banks in the sample did not experience drops in the LCR during the turmoil that some banks outside the monitoring sample experienced.
• There was again no agreggate NSFR shortfall for the balanced data set of Group 1 banks. The average NSFR for the same sample of banks decreased from 125.6% to 124.0% in June 2023.
• Both LCR and NSFR were above pre-pandemic levels at the reporting date.

• For a balanced data set of Group 2 banks, the LCR shortfall has remained at zero since June 2017. The average LCR for the same sample of banks decreased by 2.4 percentage points to 178.4% in June 2023.
• The aggregate NSFR shortfall remained at zero for the balanced data set of Group 2 banks. The average NSFR for the same sample of banks decreased by 2.6 percentage points to reach 126.3% in June 2023.
• Both LCR and NSFR remain above pre-pandemic levels. At end-2019, the LCR of the same sample of Group 2 banks stood at 162.8%, the NSFR at 117.1%.

• Since 2019, the weighted average LCR for both Europe and the rest of the world has largely been above 140%, while the average LCR for the Americas is around 121%. While Europe and the Americas initially had lower average LCRs compared with the rest of the world, the average LCRs of Europe and the rest of the world tended to gradually converge before the onset of the pandemic. The regions with lower end-2012 average ratios saw significant increases, in particular between end-2012 and June 2014, and Europe has seen such increases again since the start of the pandemic. The increase in Europe is now reversing, although the LCR of European banks is still above end-2019 levels.
• The weighted average NSFR at end-June 2021 for Group 1 banks in each of the three regions was well in excess of 100%. The average NSFR in Europe increased from 119.9% at end-December 2022 to 121.4% at end-June 2023. After a significant drop during H1 2022 and a subsequent rise, the NSFR of banks in the Americas dropped significantly again, to 120.6% at end-June 2023.

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¹ See Basel Committee on Banking Supervision, High-level summary of Basel III reforms, December 2017, www.bis.org/bcbs/publ/‌d424_hlsummary.pdf; Basel Committee on Banking Supervision, Basel III: Finalising post-crisis reforms, December 2017, www.bis.org/bcbs/publ/d424.htm.

² A list of previous publications is included in the Annex.

³ Group 1 banks are those that have Tier 1 capital of more than €3 billion and are internationally active. All other banks are considered Group 2 banks. Not all banks provided data relating to all parts of the Basel III framework.

⁴ Here, overall credit risk is defined as the sum of corporate, bank, retail, sovereign, partial-use, securitisation and related entities as illustrated in the graph.