The EBA will make its Basel III Monitoring Exercise Mandatory

The European Banking Authority (EBA) published on 16th of March 2021 a decision, which changes the Basel III monitoring exercise from its current voluntary nature to a mandatory exercise from December 2021. 

This change stems from the need to expand the sample to more jurisdictions and credit institutions, making it more representative, as well as to reach a stable sample over time by providing authorities with a sound legal basis that frames institutions’ participation.

LEVEL OF APPLICATION

The data submission applies to credit institutions at the individual level or at the consolidated level depending on the following criteria :

1. Credit institutions not belonging to groups: reporting at the individual level; 
2. Credit institutions belonging to groups with presence in one Member State only: reporting at the highest level of consolidation in that Member State (consolidated level), which is also the highest level of consolidation in the EU;
3. Credit institutions belonging to groups with presence in more than one Member State: reporting at the highest level of consolidation in the EU (consolidated level). 

PARTICIPATING CREDIT INSTITUTIONS

The decision applies clear selection criteria for defining the country samples. Specifically, the national competent authority in each member state (e.g. CSSF for Luxembourg) should apply, sequentially, the following criteria :

1. All Global and Other Systemically Important Institutions (G-SIIs and O-SIIs) are included in the country sample at the highest level of EU consolidation, irrespective of their size;
2. If (i) G-SIIs and O-SIIs represent less than 80% of the country total risk-weighted assets (RWA) and (ii) the sample size is smaller than 30 credit institutions, additional large institutions (Tier 1 capital ≥ EUR 3 billion or total assets ≥ EUR 30 billion) shall be added to the sample until reaching at least 80% of the country total RWA or a sample of 30 credit institutions;
3. If (i) G-SIIs, O-SIIs and large institutions represent less than 80% of the country total RWA, (ii) the sample size is smaller than 30 credit institutions, and (iii) the banking system in that Member State represents at least 0.5% of the total EU RWA, additional medium-sized and small credit institutions shall be selected from the eligible population of three different broad business models (universal business model, retail-oriented business model and corporate-oriented).

Every three years, national competent authorities shall make the calculations and establish the sample of participating credit institutions, which shall remain stable during these three years.

By September 30th of each year, competent authorities shall provide the EBA with the sample of participating credit institutions.

DATE AND FREQUENCY OF SUBMISSION

The monitoring exercise shall take place on an annual basis with reference date as of 31st of December and submission deadline being the first Friday of April of the following year.

In their turn, after having performed rigorous internal controls and quality checks, the national competent authorities shall submit to the EBA the Basel data by the third Friday of April.