The Financial Stability Board (FSB) today published its latest annual list of Global Systemically Important Banks (G-SIBs). Compared to the 2012 list, Industrial and Commercial Bank of China (HKG:1398) (SHA:601398) Limited is the sole new entrant, bringing the total number of GSIBs to 29.
Banks report a collection of indicators
The list was prepared according to the methodology developed by the Basel Committee on Banking Supervision. Banks report a collection of indicators to national banking supervisory authorities, which use these to compile scores for each bank.
These indicators span the categories of a bank’s size, interconnectedness, lack of readily available substitutes or financial institution infrastructure, global (cross-jurisdictional) activity and complexity.
How a bank is identified as GSIB
A bank is identified as a GSIB if its score crosses a certain threshold – it is then allocated to a ‘bucket’ that will determine the higher loss absorbency requirement stipulated in July 2013. The additional loss absorbency requirements will range from 1% to 2.5% Common Equity Tier 1 (CET1) depending on a bank’s systemic importance with an initially empty bucket of 3.5% CET1 as a means to discourage banks from becoming even more systemically important.
According to the Bank For International Settlements, these measures “deal with the cross-border negative externalities created by G-SIBs which current regulatory policies do not fully address. The measures will enhance the going-concern loss absorbency of G-SIBs and reduce the probability of their failure.”
G-SIBs as of November 2013 allocated to buckets corresponding to required level of additional loss absorbency
| Bucket6 | G-SIBs in alphabetical order within each bucket |
|
5 (3.5%) |
(Empty) |
|
4 (2.5%) |
HSBCJP Morgan Chase |
|
3 (2.0%) |
BarclaysBNP ParibasCitigroupDeutsche Bank |
|
2 (1.5%) |
Bank of AmericaCredit SuisseGoldman SachsGroup Crédit AgricoleMitsubishi UFJ FG
Morgan Stanley Royal Bank of Scotland UBS |
|
1 (1.0%) |
Bank of ChinaBank of New York MellonBBVAGroupe BPCEIndustrial and Commercial Bank of China Limited
ING Bank Mizuho FG Nordea Santander Société Générale Standard Chartered State Street Sumitomo Mitsui FG Unicredit Group Wells Fargo
|
The higher a bank is ranked on this list, the greater its chances of causing a systemic disruption due to failure. It would therefore be required to maintain higher capital adequacy levels to compensate for this risk propensity. These higher capital surcharges would be implemented in phases commencing 2016.
