The Financial Stability Board (FSB) released its updated list of global systemically important banks (G-SIBs), which face tougher regulatory requirements, Monday. And still, no Canadian banks are on the list.
The process of designating global systemically important banks represents an effort to address the systemic risks, and moral hazard, associated with financial institutions that are “too big to fail”. Banks that are considered G-SIBs face higher capital requirements, depending on the degree of their systemic importance.
The list of G-SIBs is updated annually, and today the FSB released its latest list, which adds one bank, Industrial and Commercial Bank of China Ltd. Currently, there are no banks in top bucket, which would have to hold an extra 3.5%.
The firms that must hold an extra 2.5% are HSBC and JPMorgan Chase. Those required to maintain an added 2.0% are Barclays, BNP Paribas, Citigroup, and Deutsche Bank. Bank of America, Credit Suisse, Goldman Sachs Group, Crédit Agricole, Mitsubishi UFJ FG, Morgan Stanley, Royal Bank of Scotland, and UBS fall into the 1.5% bucket. And, another 15 banks are in the 1.0% bucket.
The higher loss absorbency requirements for G-SIBs will be phased in from January 2016, with full implementation by January 2019. The initial requirements in January 2016 will apply to G-SIBs identified in November 2014, using the buckets for higher loss absorbency at that date. Additionally, firms will face higher supervisory expectations for risk management functions, data aggregation capabilities, risk governance and internal controls.
Global insurance regulators are also identifying global systemically important insurers (G-SIIs). And, by the end of this year, the FSB and the International Organization of Securities Commissions (IOSCO) will issue a proposed assessment methodology for identifying other global systemically important financial institutions, it notes.
Earlier this year, changes to the methodology for assessing banks’ systemic importance were adopted. The Basel Committee on Banking Supervision published additional information regarding the G-SIB methodology today, including: the denominators that were used to calculate the scores of banks; and, the cut-off score and bucket thresholds that were used to identify the updated list of G-SIBs and to allocate them to buckets.
The Basel Committee says that this information “will enable banks that participated in the G-SIB exercise to calculate their end-2012 scores and see their positions within the buckets that, in future exercises, will determine their higher loss absorbency (HLA) requirement.”