Question

What are the main implications of Basel III for European banks?

What are the main implications of Basel III for European banks?

Homework Answers

Answer #1

Implications of Basel III on EU Banks:

  • Basel III increased the amount of capital and quality of capital that bank needs to keep.
  • It also requires the bank to maintain liquidity.
  • It has put more emphasis on stress testing
  • Due to all this, there will be a sharp drop in ROE. Before crisis EU Bank had ROE of 15% but it may drop by 4%
  • Due to the increased capital requirement, it is anticipated that there will be a shortfall of 1.1 trillion EUR by 2019. it is% more than the previous estimate
  • IT spend of the bank will increase to meet the regulatory requirement
  • More stringent models will be developed to calculate counterparty risk
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