G-SIBs facing higher capital requirements: FSB

The list was initially developed in order to address moral hazard and the systemic risk posed by very large, interconnected firms, which was highlighted by the financial crisis. In order to address those risks, the banks on the list will have to pay a capital surcharge and undergo additional regulatory supervision.

While the FSB has been publishing the list for several years now, this is the first year that membership on the list means that the banks will actually face tougher requirements, starting in 2016. The various banks on the list are allocated to buckets that correspond with higher loss absorbency requirements, which they will be required to hold starting in January 2016 (the requirements will be phased in through to 2019).

Overall, one bank has been added to the list of G-SIBs, increasing the total from 29 to 30. Once again, the top bucket remains empty. Only HSBC and JP Morgan Chase are in the second bucket, which requires 2.5% in additional capital. The next group includes Barclays, BNP Paribas, Citigroup, and Deutsche Bank. The fourth group features Bank of America, Credit Suisse, Goldman Sachs, Mitsubishi UFJ FG, Morgan Stanley, and Royal Bank of Scotland. Another 18 firms round out the list.

None of the Canadian banks are on the FSB’s list of G-SIBs, although all of the big banks are considered systemically important to the domestic financial system under rules promulgated by the Office of the Superintendent of Financial Institutions (OSFI).

Along with the updated list, the Basel Committee on Banking Supervision also published a more detailed methodology for determining systemic importance, including the denominators used to calculate banks’ scores, and thresholds used to allocate the banks to the various buckets.