The Basel-based Financial Stability Board (FSB) on Tuesday announced the latest list of global systemically important banks (G-SIBs), which includes 30 of the world’s biggest banks.
These “too big to fail firms” will be subject to tougher capital rules and closer supervision in a bid to prevent harm to the global financial system if they fall into trouble.
The FSB added China Construction Bank to the G-SIB list this year, and deleted BBVA from the list. The FSB also moved Royal Bank of Scotland (RBS) down the list, meaning that it requires less additional capital, reflecting its diminishing systemic importance.
None of the big Canadian banks are on the list, although the Basel Committee on Banking Supervision released the sample of banks that were examined for systemic importance, which did include Canada’s Big Five. The FSB’s next update to the list will be published in November 2016.
The annual G-SIB assessment is part of a process adopted in the wake of the financial crisis to address the systemic and moral hazard risks that accompany financial institutions that are critical to the global financial system based on their size, interconnectedness, and other features.
Banks that make the list will be subject to higher loss absorbency requirements, which will start to be phased in on Jan. 1, 2016, and will be fully implemented by Jan. 1 2019.
G-SIBs will also be subject to a global standard for total loss-absorbing capacity (TLAC) to ensure that they can be resolved without taxpayer bailouts. The TLAC standard was released for consultation last November and the FSB says that the final standard is expected to be released on November 9.
The FSB also published an updated list of global systemically important insurers (G-SIIs), based on the dedicated insurance methodology developed by the International Association of Insurance Supervisors (IAIS). The updated list continues to include nine firms, but none of the large Canadian insurers are on the list. One new firm, Aegon, was added to the list this year, while Generali was removed.
According to the FSB, later this month the IAIS will publish a consultation to update the methodology for assessing systemic importance in the insurance industry, which will consider revisions “to ensure an appropriate treatment of all types of primary insurance, reinsurance and other financial activities of global insurers.” It also notes that the IAIS is continuing to develop policy measures to be applied to G-SIIs.
FSB issues new guidance
Separately, the FSB warned there is more work to be done to ensure that major, global banks could be wound up without taxpayer bailouts if they run into financial trouble.
The FSB issued new guidance Tuesday, and launched new consultations, as part of its continuing effort to curb moral hazard in the global financial system. To that end, it released two news sets of final guidance, and three consultative documents, as part of its agenda to end “too-big-to-fail” policies, and to promote the resolvability of global financial institutions.
“Cross-border resolution planning has come far from the state that existed in the wake of the global financial crisis,” says Elke König, chairwoman of the FSB Resolution Steering Group, and chairwoman of the European Union’s Single Resolution Board, in a statement.
Yet, she also notes that the world’s big banks are still not in a position to be resolved without government assistance. “The results from the first round of the ‘resolvability assessment process’ that home and host authorities of globally systemic banks have completed this year have shown that we have more work to do before we can claim that such firms are truly resolvable,” she says.
The final guidance includes a paper on cross-border resolution, which sets out statutory and contractual mechanisms that “jurisdictions should consider including in their legal frameworks”, the FSB says; and, a paper that aims to promote cooperation and information sharing between global authorities.
The FSB also issued new consultations on: temporary funding arrangements for a systemically-important bank that is facing resolution; supporting continued operations during a resolution; and,resolution strategies and plans for systemically important insurers. Comments on each of the papers is due by Jan. 4, 2016.
“The consultations and final guidance will provide practical orientation in some of the areas where we identified impediments to resolvability, and are part of our continuing work within the FSB to insure that our resolution plans can be implemented in a timely manner and with certainty,” König adds.