European banks have 44bn€ invested in software, which supposes a capital charge of 55 bp

The new capital requirements regulation (regulation CRR2 and directive CRD V) could improve the capital levels in European banks through its treatment of software intangibles (the changes would not come into effect until 2021/2022; they depend on what the EBA says in 2020).

European banks have some 44 Bn€ invested in software and currently suppose a capital charge of 55 bp as the value of software is deducted from CET1, which represents a considerable cost. This is not only important for its impact on capital but also because the banks are under pressure to keep investing in digitalisation and improving IT systems. Swiss and US banks enjoy greater flexibility, which puts Eurozone banks at a disadvantage.

This new regulation could improve capital ratios by 10-20 bp in our base scenario and up to 50 bp in our best case.

We calculate that the 5 main beneficiaries would be: Julius Baer (30-75 bp), Sabadell (24-60 bp), Nordea (20-53 bp), Lloyds and Barclay (both 20-50 bp).