AFME Prudential Data Report Q2 2020 | AFME

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AFME Prudential Data Report Q2 2020
28 Oct 2020
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Julio Suarez Director

This report collates information on EU GSIBs’ prudential capital, leverage and liquidity ratios with updated statistics as at 30 June 2020.

It also illustrates the recent performance of the debt and contingent convertibles (CoCo) markets and the funding structure for banks in Europe as of October 2020.

 

 

Among the main findings of this report:

 

  • European GSIBs reported in 2Q 2020 record CET1, T1 capital and Liquidity Coverage ratios on the back of the build-up of precautionary buffers and regulatory support to facilitate the COVID-19 economic recovery.
  • The weighted average CET1 ratio increased by 40bps during 2Q 2020. Of this, regulatory relief on banks’ capital requirements (i.e. CRR “quick fix” and transitional implementation of IFRS9) had a weighted average impact of 24bps, RWA contraction (ex-regulatory relief) 6 bps, retained earnings 11bps, and FX and others -1bp.
  • The European CoCo market reopened in the second quarter of 2020 with the issuance of 30 AT1 notes since May-20 equivalent to €18.6bn in proceeds. CoCos issued during 2Q20 and 3Q20 have been originated with higher coupon rates compared to those issued in 1Q20 (5.9% in 2Q20 and 5.4% in 3Q20 vs. 4.6% in 1Q20 for fixed rate CoCos).
  • The end of Too Big To Fail (TBTF): Pages 21-25 provide a summary of a preliminary analysis on banks’ borrowing costs during the COVID-19 market distress episode (as a proxy to measure the so-called “implicit subsidy” of large banking institutions). During the March 2020 market stress episode, large systemic European institutions exhibited higher funding costs compared to those for smaller non-systemic institutions. This results illustrate the success of TBTF reforms and progress in reducing the moral hazard posed by the largest financial institutions and the funding advantage for systemic banks compared to smaller institutions.
  • Early 3Q 2020 earnings results have shown continuing progress in building capital and a sharp decline in credit impairments since 2Q 2020. These and other features of the EU G-SIBs Q3 results will be picked up in the next issue of the report which will be published in late November.