Central Bank Policy: Basel III Monitoring Shows Stable Bank Capital

Bank regulation is the part of central bank policy that rarely changes headlines and often decides outcomes. The rules that set how much capital and liquidity banks must hold take years to write and years more to apply. On September 23, 2026, the Basel Committee on Banking Supervision published its latest Basel III monitoring exercise, a periodic report on how the largest banks stand against those rules. The BIS report, based on data as of December 31, 2025, finds that risk-based capital and leverage ratios were stable compared with June 2025, and that liquidity measures moved only a little.

The headline findings

The Committee’s summary is plain. Risk-based capital and leverage ratios remained stable for large internationally active banks over the second half of 2025. On liquidity, the weighted average Liquidity Coverage Ratio (LCR) for Group 1 banks rose to 136.6%, while the weighted average Net Stable Funding Ratio (NSFR) fell slightly to 123.3%. Every bank in the sample reported an LCR and an NSFR above the 100% minimum requirement.

The two ratios measure different things. The LCR compares a bank’s stock of high-quality liquid assets with the cash outflows it would face in a 30-day stress. The NSFR compares the stable funding a bank has over a one-year horizon with the funding its assets and activities require. A bank can look strong on one and weaker on the other, which is why the Committee reports both. The movements in the period were small in each direction, and the Committee’s own description is “limited movements.”

What “fully phased-in” means

The part of the report that draws the most analytical interest is the estimate of what the finalized framework would require. The Committee calculated the average impact of the fully phased-in final Basel III framework on the Tier 1 minimum required capital (MRC) of Group 1 banks at +2.2%, compared with +1.7% at the end of June 2025. The Committee said the change was driven by a bigger sample of banks in the latest exercise, and did not describe it as a deterioration or as a change in the rules.

Group 1 banks report a regulatory capital shortfall of €1.2 billion, compared with €0.9 billion at the end of June 2025. The shortfall is a measure of how much additional capital the banks in the sample would need to meet fully phased-in requirements. The increase is €0.3 billion across a sample of 106 such banks, and the larger sample may account for part of the rise.

Methodology deserves attention here. The “fully phased-in” results assume that positions at the reporting date were subject to the full application of the Basel III standards, without the transitional arrangements that expire on January 1, 2028. The Committee made no assumptions about bank profitability or behavioral responses, such as changes in capital or balance sheet composition. For that reason, it cautioned, the results may not be comparable with industry estimates. The study answers a narrow question: what would today’s balance sheets need under tomorrow’s rules, all else equal.

Who is in the sample

The data cover 149 banks. Of those, 106 are Group 1 banks, defined as internationally active banks with Tier 1 capital above €3 billion, and the group includes 29 institutions designated as global systemically important banks. The remaining 43 are Group 2 banks, those with Tier 1 capital below €3 billion or that are not internationally active.

The composition explains some of the period-to-period differences. The Committee noted that prior-period values can differ slightly from the figures it published before, because banks update earlier data and because additional national Pillar 1 requirements have been included to give a clearer picture of how Basel III affects target capital. In other words, comparisons across reports are approximate, and the movement of a few tenths of a percentage point should be read with that in mind.

The report also separates the “current Basel III framework,” which reflects jurisdictional standards as they applied on December 31, 2025, with their different degrees of implementation, from the “fully phased-in final framework.” The gap between the two is one measure of how far some jurisdictions still have to go.

The distance from the minimum is easy to compute. A weighted average LCR of 136.6% sits 36.6 percentage points above the 100% requirement, and a weighted average NSFR of 123.3% sits 23.3 points above it. Averages conceal the weakest banks, but the Committee’s statement that every bank in the sample met both minimums means the lowest observation in each case was at or above 100%.

Why this matters for central bank policy

The findings bear on how far large banks still have to adjust to the final standards. A report showing stable ratios and a shortfall of €1.2 billion gives policymakers a measured starting point. It does not settle the question, because the Committee’s method excludes any assumption about how banks would respond and because the data end in December 2025, just under nine months before publication.

The report also bears on monetary and financial stability policy in a less direct way. Banks transmit central bank decisions into lending. Their capital and liquidity positions determine how much room they have to do so under stress. Central banks that supervise banks, or share responsibility for financial stability, use exercises like this one to judge whether the system can absorb shocks. A weighted average LCR of 136.6% means the average large bank holds more high-quality liquid assets than the minimum requires by a wide margin.

What to watch

The next report will show whether the sample enlargement continues to affect headline comparisons, and whether the +2.2% impact figure holds as the transition ends on January 1, 2028. Another source of change is implementation: as more jurisdictions apply the final framework, the gap between the current and fully phased-in results should narrow. The Committee has said it publishes these exercises regularly and has done so since 2012, so the next reading will follow the same pattern.