FSB adds China AgBank as systemically important bank

    The Agricultural Bank of China Ltd. (AGBank), China's third largest bank by assets, has been added to the list of global systemically important banks (G-SIBs) maintained by the Financial Stability Board (FSB), the Swiss-based body that coordinates global financial regulation.
    The addition of AGBank increases the overall number of G-SIBs on FSB's list to 30.
   Systemically important banks are defined as those whose distress or disorderly failure would cause significant disruption to the global financial system and economic activity due to their size, complexity and interconnectedness. These banks are often referred to as "too-big-to-fail."

    The FSB started identifying banks that are considered systemically important in 2011 following an endorsement by Group of 20 leaders in 2010. The FSB updates its list every November based on a methodology developed by the Basel Committee on Banking Supervision (BCBS) and the latest update is based on end-2013 financial data.

    Both the FSB and the Basel Committee are based at the Bank for International Settlements (BIS) in Basel, Switzerland.
    Banks on FSB's list of G-SIBs are subject to tougher financial regulation, including higher loss absorbency requirement that is being phased in from Jan. 1, 2016, resolution plans in the event of a collapse, and higher supervisory expectations for risk management functions, risk governance and internal controls.

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Cap on debt-to-income can control home prices - BIS

    Most countries that experienced an explosion in house prices ahead of the global financial crises have taken a variety of policy measures to avoid another real estate boom with evidence that a limit of the debt-service-to-income ratio is the best tool to slow housing credit growth, according to the Bank for International Settlements (BIS).
    But to slow down the actual growth of real estate prices, a BIS working paper found that higher housing- related taxes was the only tool that had any measurable impact.
    Measures specifically targeted at dampening a rise in real estate prices are now used by authorities worldwide as it has become clear that an increase in central bank interest rates that is large enough to dampen the rise in house prices would run the risk of triggering an overall recession.
    The working paper by Kenneth Kuttner, professor of economics at Williams College, and Ilhyock Shim, senior economist at BIS' Hong Kong office, systematically examines the efficacy of nine different measures taken by 60 countries since 1980 to control housing credit and house prices.
    Click to read: "Can non-interest rate policies stabilize housing markets? Evidence from a panel of 57 economies."

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Global shadow banking grows by $5 trillion in 2012 - FSB

    Shadow banking assets grew by an estimated $5 trillion in 2012 to a total of $71 trillion, mainly due to the general rise in financial markets, according to the Financial Stability Board (FSB).
    In its third annual survey of the world of shadow banking, which has been expanded to include hedge funds along with insurance companies, pension funds and public financial institutions, the FSB said the rise last year measured on a broad basis amounted to 8.1 percent, up from an 0.6 percent rise in 2011.
    In general, shadow banking - or non-bank financial intermediaries - forms a large proportion of financial systems in advanced economies and was largely stable last year but the FSB said shadow banking had grown strongly in emerging markets, up by over 20 percent, though from a small base.
    In China, for example, shadow banking assets grew by 42 percent in 2012 while in Spain they shrunk by 11 percent, the FSB said.
    The rise in shadow banking assets last year is in contrast with the banking system where assets were relatively stable as the effect of higher asset values was counterbalanced by shrinking balance sheets.
    Globally, the assets of the shadow banking system represents an average of some 24 precent of total financial assets, about half of banking system assets and 117 percent of the Gross Domestic Product of the 25 jurisdictions and the euro area as a whole that were monitored by the FSB.

FSB names China's ICBC as systemically important bank

    The Industrial and Commercial Bank of China Ltd. (ICBC) has been added to the list of globally systemically important banks (G-SIBs) by the Financial Stability Board (FSB), which means the Chinese bank faces stricter supervision and higher capital charges from January 2016.
    The Swiss-based FSB, which coordinates global financial regulation, updates its list of globally systemically important banks and financial institutions (G-SIFIs) every November. The latest update of the list is based on end-2012 data and the list has now risen to 29 from 28.
    In July the FSB also identified nine global systemically important insurers (G-SIIs), which together with the banks comprise the list of G-SIFIs. The update to the list of insurers takes place next November.
    In addition to including ICBC for the first time as a G-SIB, the FSB will impose slightly less additional loss absorbency on Citigroup, Deutsche Bank and Bank of New York Mellon while France's Group Credit Agricole faces a slightly higher charge.
   Systemically important banks are defined as those whose distress or disorderly failure would cause significant disruption to the global financial system and economic activity due to their size, complexity and interconnectedness. These banks are often referred to as "too-big-to-fail."

FSP issues shadow banking rules on securities, regulation

    Global plans to strengthen the regulatory oversight of shadow banking are nearing completion as the Financial Stability Board (FSB) released two new policy frameworks covering securities lending and supervision.

    The latest proposals are part of the international community’s efforts since the global financial crises to tackle the threat from shadow banking, the vast and largely unregulated world of hedge funds, money market funds and investment vehicles.

    The financial crises revealed that shadow banking - roughly half the size of the regulated banking sector - posed a severe threat to financial stability, not only because of its size and global reach but also because it is part of a complex chain of financial transactions with banks and insurance companies.

    “ Like banks, a leveraged and maturity-transforming shadow banking system can be vulnerable to “runs” and create contagion risk, thereby amplifying systemic risk,” said the FSB, the international body that monitors and coordinates global financial regulation on behalf of the Group of 20 (G20) leading economies.

    Over the last two years, the FSB has been developing a string of policies aimed at reducing the risk from shadow banking by creating a monitoring framework to track the sector and strengthen the oversight and regulation of the shadow banking system.

    "Most of these policy measures are now finalised and will be adopted by FSB members in an internationally-coordinated manner," said the FSB, adding that some of its latest proposals that cover minimum haircuts for securities financing transactions would be refined further to avoid any unintended consequences for the financial system.

     The challenge for the FSP, along with the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO), has been to devise rules that limit the risks yet retain the benefits and don’t stymie future financial innovation.

     "When implemented, this integrated set of policies should mitigate financial stability risks emanating from shadow banking. They should also limit the incentives of risky activities to move to the unregulated sector as tighter regulations on banks and other traditional market participants come into effect," the FSB said.

    While off-balance sheet financial entities and various forms of securitization have been around for centuries, the current form of shadow banking first took off in the last decades as banks exploited regulatory gaps and used regulatory arbitrage to minimize cost.  

     Click to read the FSB’s latest policy recommendations for shadow banking.

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Russia, CIS to check banks for impact of euro crises-FSB

    Russia and other former Soviet republics will check the impact of the euro area debt crises on banks and consider possible policy responses along with peer reviews of the progress the countries are making in implementing financial reform, Financial Stability Board (FSB) said.
    Finance officials from the Commonwealth of Independent States (CIS) met earlier today in Moscow as part of the FSB's regional consultative group for CIS and discussed policy priorities under Russia's upcoming Group of 20 presidency, according to a statement from the FSB, the global body that monitors and coordinates financial regulation on behalf of G20 world leaders.
    Discussions also focused on the policy framework for domestic systemically important banks (D-SIBs) and the potential impact of financial reforms on emerging markets and developing economies.
    "Members agreed to conduct an analysis of the potential impact of the financial situation in some European countries on the region and possible policy responses," the statement said.
     Members of FSB's regional consultative group for the CIS include Russia, Ukraine, Armenia, Belarus, Kazakhstan, the Kyrgyz Republic and Tajikistan.

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BIS not worried by U.S. delay of Basel III bank rules

    The Bank for International Settlements (BIS) is looking forward to full implementation of the new Basel III banking regulations and is not worried by the United States' delay in applying the global rules.
    BIS Economic Adviser Stephen Cecchetti said "some jurisdictions are having small technical problems on meeting the exact timetable to which they have committed so there are modest and immaterial delays."
    Last month the United States said it had delayed indefinitely the implementation of Basel III beyond the internationally-agreed date of January 1, 2013 due to the high volume of comments received and the range of views that were expressed.
    The delay raised fears that other countries could backtrack on their commitments to implement the new tougher banking rules following criticism by both U.S. and UK officials that the Basel III rules were too complex and should be redrafted.
    But Cecchetti said the Basel III rules had been agreed by global leaders and were now in the process of being implemented.
   The Financial Stability Board (FSB), which monitors the implementation of global financial rules, said in October that only eight of 27 countries had issued their new banking rules so it was highly likely that only six of 28 global systemically important banks would be subject to Basel III in January.

Global supervisors aim to limit risks from shadow banking

    Shadow banking, the huge but unregulated frontier of the financial world, will soon be subject to bank-like supervision as global policymakers start to hammer out rules that reduce the chances of future crises yet still allow new creative financing models to emerge.
    The Financial Stability Board (FSB), which monitors and coordinates global financial regulation, has proposed an ambitious policy framework and recommendations that it believes are needed to “mitigate the potential systemic risks associated with shadow banking,” and expects to issue final proposals in September 2013 following industry comment.
    The term shadow banking describes the murky world of hedge funds, money market funds and investment vehicles that are often used by major banks to carry out sophisticated financial transactions.
    As these shadow legal entities do not take customer deposits, they don’t need banking licenses and are not subject to supervision.
    The 2008 global financial crises exposed the threat from shadow banking to financial stability, not just because of its vast size but because it was completely interwoven with the supervised banking system; a regulated banking system relied on unregulated entities with a razor-thin capital base.
    Global political leaders, meeting as the Group of 20, decided that the risks from shadow banking – about half the size of the normal banking system - posed too great a threat and asked the FSB to come up with policy recommendations.

US delays start of Basel III bank rules, no new date set

    The United States has delayed indefinitely the implementation of new tougher banking standards, known as Basel III, beyond the internationally-agreed date of January 1, 2013.

    Under Basel III, banking regulators worldwide would have raised capital charges around three times and imposed stricter supervision, especially on major banks such as Citigroup and JP Morgan Chase, to prevent a repeat of the 2008 global financial crises.

    Although Group of 20 finance ministers and central bank governors, including those from the U.S., agreed to implement Basel III only last week, there has been increasing pressure to delay the start due to the complexity of the rules and the cost to banks at a time of weak global economic growth.

     The Federal Reserve issued its version of the Basel III rules in June and asked for comment. Today it said that many bankers had told it they were concerned they would be subject to the new capital rules “without sufficient time to understand the rule or to make necessary systems changes.”

    “In light of the volume of comments received and the wide range of views expressed during the comment period, the (U.S. federal banking) agencies do not expect that any of the proposed rules would become effective on January 1, 2013,” the Federal Reserve said.

FSB adds BBVA, Standard Chartered to list of key banks

    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.

OTC infrastructure ready, but no regulatory certainty - FSB

    The private sector infrastructure necessary to trade, clear and record over-the-counter (OTC) derivative transactions is now ready but regulatory uncertainty is blocking everyone from using these new exchanges, according to the Financial Stability Board (FSB).
    The FSB’s fourth progress report on reforming OTC derivatives, which triggered fears of contagion during the global financial crises, showed that the United States, the European Union, Hong Kong and Japan have made further progress in meeting the goal of trading and clearing through central counter parties by end-2012.
    But agreeing on cross-border rules is lacking and the FSB urged regulators worldwide to identify and develop options to tackle the shortcomings to help meet the end-2012 commitment to central clearing.
    The financial crises revealed that OTC derivatives had contributed to the build-up of systemic risk and the global nature of these markets - where buyers and sellers are frequently located in different jurisdictions - makes globally consistent regulation essential.

Task force issues 7 disclosure principles for banks

    A task force comprised of bankers, investors, analysts, auditors and credit ratings’ officers has issued seven principles that should make it easier for shareholders to grasp the risks posed by banks and help restore their trust in the financial industry.

    The principles from the Enhanced Disclosure Task Force (EDTF), which was formed in May at the initiative of the Financial Stability Board (FSB), is different from recommendations by banking regulators because they arise from discussions between users and prepares of financial reports.

    “These principles provide a firm foundation for developing high-quality, transparent disclosures that clearly communicate banks’ business models and the key risks that arise from them,” said the report, co-chaired by Hugo Baenziger, supervisory board chairman of Eurex, Russell Picot, group general manager of HSBC, and Christian Stracke, managing director of Pimco.

    The principles are mainly aimed at improving risk disclosure by large international banks, but should also be applicable to all banks that access equity and debt markets.