Basel III: how some banks will lose out

Author: Olly Jackson | Published: 15 Jan 2018

The Basel III reform reached at the end of last year were less restrictive than many expected. The new output floor of 72.5% is lower than the 80% discussed at the beginning of talks – and the 90% feared by some - but the changes are expected to affect mortgage banks more than others in financial services.

Citigroup Global Markets estimates that European banks assets weighed for risk (or RWAs) will increase by about 20% or €1.6 trillion ($1.9 trillion) as a result of new requirements. Regulators are concerned that banks have downplayed the risk of mortgages in their risk models and therefore proposed new rules on how to assess these, together with a new output floor that is be fully enforced by January 2022. Under the plan, banks’ total RWAs cannot be less than 72.5% of a figure calculated using an official standardised model approach devised by regulators....