The Financial
Stability Board (FSB), which coordinates global financial regulation, has added
Spain’s BBVA and UK-headquartered Standard Chartered banks to its list of
global systemically important banks (G-SIBs) and removed Germany’s Commerzbank, the UK’s Lloyds Banking Group and Franco-Belgian Dexia from the list.
The FSB's latest list of
globally important banks is based on data from end-2011 and now comprises 28
banks, down from last year’s list of 29 banks.
Lloyds and Commerzbank were removed from the list due to a “decline in
their global systemic importance” while Dexia was taken off as its going
through an orderly resolution process.
Being labeled a
systemically important bank or financial institution has consequences as
regulators will not only impose stricter supervision but also higher capital
charges than other financial institutions.
The list for the first time divides
banks into buckets of additional loss absorbency that is required by
regulators. G-SIBs will be subject to resolution planning rules by end-2012 and
the additional loss-absorbency requirements will be phased in by January 2016
and fully implanted by January 2019.
Systemically
important banks are defined as those institutions whose distress or disorderly
failure would cause significant disruption to the global financial system and
economic activity due to their size, complexity and interconnectedness.
Figuring out how
to wind down and untangle these large institutions has been a focal point of
efforts to avoid a repeat of the 2008 financial crises when there was little choice other
than to rescue banks to avoid a total meltdown of the financial system.
But these costly
bank rescues have lead to an explosion in government deficits and debt, rattled sovereign credit ratings and limited their ability to provide further stimulus and
aid economic recovery.
To solve this
‘too-big-to-fail’ problem, officials have been preparing resolution strategies
and arming themselves with the legal power that would allow them wind up
complex conglomerates so economies aren’t plunged into recession,
financial systems are crippled or taxpayers saddled with losses.
Global
coordination of such resolution plans is also critical so regulators know who
is responsible for which parts of global conglomerates and are prepared to
cooperate during a crises.
In addition to its
updated list, the FSB also released a report on the steps that countries have
taken to reform their recovery and resolutions regimes, with the FSB reporting
encouraging progress.
“Cross-border crisis management groups are
now established for nearly all the G-SIFIs designated by the FSB in November
2011 and have initiated discussions on high-level resolution strategies,” FSB
said.
A separate report on the supervision of
SIFIs finds that further steps are needed to make supervision more proactive
and effective, including the evaluation of the risk culture and the
effectiveness of management and boards of financial institutions.
FSB was set up to monitor and help
implement many of the standards that were agreed by global leaders in the wake of the crises. One of the lessons was that unless ambitious global
banking standards are strictly enforced and backed by national laws, they are
of little practical use when a crises strikes.
In addition to
banks, some insurance companies have also been identified as systemically
important and the International Association of Insurance Supervisors plans to
reveal its list of Global Systemically Important Insurers (G-SIIs) in April
2013.
A final list of systemically important financial institutions (G-SIFIs)
will also be released next year that will include important non-bank and
non-insurance institutions, probably payment and settlement systems, and
clearing houses
The list of 28
global systemically important banks is divided into five buckets but the FSB did not place any banks in Bucket 5. In that bucket, supervisors would impose at 3.5 percent
additional equity loss absorbency as a percentage of risk-weighted assets.
The banks in
bucket 4, from which supervisors will require an additional 2.5 percent loss
absorbency include (in alphabetical order): Citigroup, Deutsche Bank, HSBC and JP Morgan Chase.
Bucket 3, which
requires a 2.0 percent additional loss absorbency, comprises Barclays and BNP
Paribas.
Bucket 2, which
requires a 1.5 percent additional loss absorbency, consists of Bank of America, , Bank of New York Mellon,
Credit Suisse, Goldman Sachs, Mitsubishi UFJ FG, Morgan Stanley, Royal Bank of Scotland and
UBS.
Bucket 4, which
requires a 1.0 percent additional loss absorbency, includes Bank of China,
BBVA, Groupe BPCE, Group Credit Agricole, ING Bank, , Mizuho FG, Nordea,
Santander, Societe
Generale, Standard Chartered, State Street, Sumitomo Mitsui FG,
Unicredit Group and Wells Fargo.
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