An Integrated Shortfall Measure for Basel III

Posted: 29 Sep 2017

See all articles by Ingo Torchiani

Ingo Torchiani

Deutsche Bundesbank

Thomas Heidorn

Frankfurt School of Finance & Management

Christian Schmaltz

Aarhus University; True North Institute

Date Written: 2017


We propose a new method for measuring how far away banks are from complying with a multi-ratio regulatory framework. We suggest measuring the efforts a bank has to make to reach compliance as an additional portfolio which is derived from a microeconomic banking model. This compliance portfolio provides an integrated measure of the shortfalls resulting from a new regulatory framework. Our method complements the descriptive reporting of individual shortfalls per ratio when monitoring banks' progress toward compliance with a new regulatory framework. We apply our concept to a sample of 46 German banks in order to quantify the effects of the interdependencies of the Basel III capital and liquidity requirements. Comparing our portfolio approach to the shortfalls reported in the Basel III monitoring, we find that the reported shortfalls tend to underestimate the required capital and to overestimate of the required stable funding. However, compared to the overall level of the reported shortfalls, the effects resulting from the interdepen- dencies of the Basel III ratios are found to be rather small.

Keywords: Basel III, linear programming, impact studies, integrated shortfall

JEL Classification: G21, C61

Suggested Citation

Torchiani, Ingo and Heidorn, Thomas and Schmaltz, Christian and Schmaltz, Christian, An Integrated Shortfall Measure for Basel III (2017). Bundesbank Discussion Paper No. 26/2017, Available at SSRN: or

Ingo Torchiani (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431

Thomas Heidorn

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322

Christian Schmaltz

Aarhus University ( email )

Nordre Ringgade 1
Aarhus, DK-8000

True North Institute ( email )

145-157 St. John Street
London, EC1V 4PY
United Kingdom
+49-17621761996 (Phone)


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