After the 2007-08 financial crisis and ensuing liquidity crunch in the global banking sector, regulators have put more stringent rules in place to make bank balance sheets healthier. Measures such as Basel III and the Capital Requirements Directive IV set strict requirements for capital buffers for European banks. The institutions have worked hard to increase capital buffers and crank up Tier 1 capital.
As a result of their efforts, over the past five years the average end-point common equity Tier 1 (CET1) ratio at the EU global systemically important banks (GSIBs) went up from 9.9% at the end of 2013 to 13.1% by the end of 2018. This is well above the levels required by Basel III, but 2018 marked the first time since the Association for Financial Markets in Europe started tracking these parameters that there was a year-on-year decline in both CET1 and Tier 1 capital ratios. They went from 13.4% and 15.1% in 2017 to 13.1% and 14.9% in 2018, respectively.
