Dominik Schätzle works as research assistant and is a PhD-candidate at the Institut of Cooperative Research at the University of Münster, in Germany.
Executive summary :
Almost 250 German co-operative banks cannot fulfill the new capital requirements according to Basel III. In general, there are two possibilities of achieving compliance with CET1 ratio by either increasing the regulatory capital or decreasing the risk-weighted assets. Both alternatives to comply with the modified CET1 ratio increases the maturity mismatch between the asset and liability side of a balance sheet. However, the maturity mismatch is shrinking after complying with the modified CET1 ratio. This result is important for the interdependency of the CET1 ratio and the new modified liquidity requirements. Moreover, the income of a bank will decline if a regulatory reduction of risk-weighted assets or an increase in CET1 capital occurs. This is resulting from an increase in administrative expenses as well as a reduction of potential new business. Considering these facts, the analysis shows the importance of the involvement of the new CET1 ratio by implementing the business strategy of a co-operative bank.