On 2 August 2019, the European Banking Authority (EBA) published a letter (dated 15 July 2019) it had received from the European Commission concerning its preparatory work for the implementation of the Basel III reforms.
The Commission notes that the EBA is currently finalising its advice on the Basel III reforms in the area of credit risk, operational risk, output floor and securities financing transactions. In addition, the EBA’s response to the Basel III reforms related to market risk and credit valuation adjustment risk is expected at the end of September.
The Commission states, however, that there are still certain areas where further work is needed from the EBA. The Commission suggests that this work could be undertaken after the publication of the EBA’s first advice, and ideally be delivered as part of the second advice. The areas where the Commission considers that further analysis is needed are:
- quantitative assessment of the impacts resulting from the application of the output floor at the sub-consolidated and individual levels;
- additional analysis to increase risk sensitivity in the equity exposure class;
- additional analysis to increase the risk sensitivity for specialised lending; and
- estimation of total loss absorbing capacity (TLAC) and minimum requirement for own funds and eligible liabilities (MREL) shortfalls. The letter adds that the EBA will soon publish a report on MREL, which should provide data to discuss the impact of the increase in risk-weighted assets (RWAs) expected to result from the final Basel III standards.