Output floor binds six global banks under full Basel III phase-in
A fully phased-in 72.5 percent output floor will bind six out of 13 disclosing global systemically important banks, according to a Bank for International Settlements study. The paper evaluates capital constraints across 29 systemic lenders between 2014 and 2025.
Fifty-five switches across 29 lenders
The study evaluates capital requirements across 29 global systemically important banks from 2014 to 2025.
As unfloored risk-weighted asset densities declined across the sample, the leverage ratio increasingly emerged as the binding capital constraint.
However, the most restrictive metric varied over time: institutions switched between the leverage ratio and risk-based constraints 55 times during the eleven-year period.
For the 13 systemic banks currently disclosing output floor metrics across Canada, the European Union, Japan, and Switzerland, transitional rules prevented the floor from binding at end-2025.
Under a fully phased-in 72.5 percent output floor, six of these 13 lenders would be bound.
Two distinct safeguards for model risk
The analytical framework maps all three regulatory requirements to risk-weighted asset density to identify when backstops substitute for each other.
While both tools restrict capital when density drops, they serve distinct prudential purposes.
The leverage ratio curbs nominal balance sheet expansion when risk models understate exposure.
In contrast, the output floor limits model variability by anchoring internal ratings to standardized approaches, maintaining both risk sensitivity and buffer usability.
A necessary double lock
The findings dismantle industry arguments that the output floor merely duplicates the leverage ratio.
By proving that internal models frequently distort capital needs, the paper justifies a dual-backstop framework.
Regulators must resist ongoing bank lobbying to dilute the 72.5 percent calibration.