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....