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Financial Stability Board, Basel Committee Propose Systemic Capital Buffer

Tuesday, November 29, 2011

Blayne V. Scofield | Bloomberg Law Financial Stability Board, Policy Measures to Address Systemically Important Financial Institutions (SIFIs) (Nov. 4, 2011)Basel Committee on Banking Supervision, Rules Text, Global Systemically Important Banks: Assessment Methodology and the Additional Loss Absorbency Requirement (Nov. 2011) On November 4, 2011 the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (Basel Committee) announced initiatives to control and mitigate systemic risk presented by global systemically important banks (G-SIBs). One of the measures approved by FSB and the Basel Committee was a new capital requirement for G-SIBs that will apply in addition to the other capital requirements that G-SIBs must comply with.

Determination of G-SIBs

The methodology used by the FSB and the Basel Committee to designate G-SIBs is set forth in the Basel Committee's rules text. Unlike its U.S. counterpart, the G-SIB determination approach outlined by FSB and the Basel Committee is transparent and quantitative. The FSB/Basel Committee system uses five categories, each of which contains one or more indicators. The indicators are quantified using metrics defined in the Basel Committee rules text. The categories and indicators are set forth in the table below.
CategoryCross-Jurisdictional ActivitySizeInterconnectednessSubstitutabilityComplexity
IndicatorsCross-jurisdictional claims Cross-jurisdictional liabilitiesTotal exposures (as defined in the Basel III leverage ratio)Intra-financial system assets Intra-financial system liabilities Wholesale funding ratioCustody assets Payments cleared and settled Underwriting activityNotional value of OTC derivatives Level 3 assets Securities held for trading and available for sale
Each bank evaluated under this system receives a numerical score. The rules text indicated that 73 banks were put through the determination process and that, for the time being, G-SIBs will include the top-scoring 27 banks (as well as two other banks included by their home supervisors using their supervisory judgment). The FSB and Basel Committee indicated that they will re-run the process each November and update the list of G-SIBs as appropriate. The initial G-SIBs are Bank of America, Bank of China, Bank of New York Mellon, Banque Populaire CdE, Barclays, BNP Paribas, Citigroup, Commerzbank, Credit Suisse, Deutsche Bank, Dexia, Goldman Sachs, Group Cr

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