Saturday, June 25, 2011

BIS Agrees on Additional Capital Requirements for "G-SIBs"

The Bank for International Settlements announced it had agreed on proposed capital requirement rules for G-SIBs (Globally Systemically Important Banks), in effort to mitigate the risks of future banking system and financial crises.  The new rules would require that G-SIBs' Common Tier 1 (CET1) capital ratios be increased by 1% to 2.5% (on top of Basel/local regulatory required capital ratios) "depending on a bank's systemic importance".  Jean-Claude Trichet, ECB president, said of the proposed rules: "the agreements reached today will help address the negative externalities and moral hazard posed by global systemically important banks."

The timeframe for the introduction of these rules would run in parallel with the Basel III capital conservation and countercyclical buffers (between 1 Jan 2016, and the end of 2018).  Also announced was the development of an assessment methodology for G-SIBs, which considers variables such as "size, interconnectedness, lack of substitutability, global (cross-jurisdictional) activity and complexity".  Banking system supervision, including details such as setting minimum capital ratios, is a key activity for many of the world's central banks, and can provide important opportunities for macro-prudential monetary policy tools e.g. counter-cyclical capital requirements (i.e. raising requirements during credit booms).

1 comment:

  1. The BCBS intends to make changes to its methodology for identifying G-SIBs, which will be subject to additional testing by March 2012 using updated bank data.