Global banking regulators are updating their approach to assessing which banks should be considered global systemically important banks (GSIBs), which are subject to tougher regulations, including added capital requirements.
The Basel Committee on Banking Supervision Wednesday issued an updated assessment methodology for systemically important banks. The committee notes that when the initial assessment methodology was issued in November 2011, it said that certain elements would be further developed before the new regime is actually implemented. In particular, it said that certain data issues would have to be addressed by re-running the assessments using updated data, and that reporting guidance would be issued to ensure the transparency of the methodology.
Now, as a result of the analysis conducted since the 2011 publication, including the collection of updated data from banks, the Basel Committee says it has made certain refinements to the assessment methodology; which is based around five broad categories: size, interconnectedness, lack of readily available substitutes or financial institution infrastructure, global (cross-jurisdictional) activity, and complexity.
The paper also describes the additional capital requirements that will apply to GSIBs, the phase-in arrangements for these requirements, and the disclosures that banks above a certain size are required to make. Banks identified as GSIBs will additional loss absorbency requirements ranging from 1% to 2.5% of common equity tier 1 capital, depending on a bank’s systemic importance; to discourage banks from becoming even more systemically important it would also levy a 3.5% requirement at banks that grow beyond the current bounds of systemic importance.
These higher capital requirements will be introduced in parallel with the Basel III capital conservation and countercyclical buffers, which are being phased in between January 2016 and year end 2018, becoming fully effective in January 2019.
The committee says that to help banks and jurisdictions prepare for the implementation of the GSIB framework, it intends to finalize certain elements of the regime in November 2013, which will enable banks to calculate their scores and higher loss absorbency requirements using end-of-2012 data, prior to the requirements coming into effect based on end-of-2013 data.
The committee says that these measures “will enhance the going-concern loss absorbency of GSIBs and reduce the probability of their failure.”