Global banking regulators Friday issued a set of principles that sets tougher requirements for banks that are systemically important at the national level.

In November 2011, the Basel Committee on Banking Supervision set rules for banks that are deemed systemically important at the global level, including imposing additional capital requirements. At the same time, it suggested that some of the features of that regime could be extended domestically significant banks, too.

On Friday, Basel proposed a set of principles for domestically-important banks. The proposed framework focuses on the impact that the distress or failure of banks will have on a domestic economy. The Basel Committee notes that, while not all domestically-significant banks are significant from a global perspective, “the failure of such a bank could have a much greater impact on its domestic financial system and economy than that of a non-systemic institution.”

However, unlike the prescriptive approach that is imposed on globally significant banks, the proposed domestic framework will take a principles-based approach. “This will allow an appropriate degree of national discretion in the assessment and application of policy tools in order to accommodate the structural characteristics of individual jurisdictions,” it says.

The proposed framework requires banks identified as systemically important by their national authorities to comply with the principles from January 2016. None of the big Canadian banks has been deemed systemically important to the global financial system, it remains to be seen if they could be designated as such within the domestic system.

The Basel Committee says it will introduce a strong peer review process for the implementation of the principles to help ensure that appropriate and effective frameworks for these banks are in place across different jurisdictions.

“Effective implementation of the proposed principles issued today will enhance the going-concern loss absorbency of systemically important banks and reduce the probability of their failure,” says Stefan Ingves, chairman of the Basel Committee and governor of Sweden’s central bank. “This will complement the measures on global systemically important banks announced last year, and contribute to a safer and sounder financial system.”

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