Tag: G-SIBs

2017 G-SIB Banks Revealed

The Financial Stability Board (FSB), in consultation with Basel Committee on Banking Supervision (BCBS) and national authorities, has identified the 2017 list of global systemically important banks (G-SIBs), using end-2016 data and the updated assessment methodology published by the BCBS in July 2013. One bank has been added to and one bank has been removed from the list of G-SIBs that were identified in 2016, and therefore the overall number of G-SIBs remains 30.

FSB member authorities apply the following requirements to G-SIBs:

Higher capital buffer: Since the November 2012 update, the G-SIBs have been allocated to buckets corresponding to higher capital buffers that they are required to hold by national authorities in accordance with international standards. Higher capital buffer requirements began to be phased in from 1 January 2016 for G-SIBs (based on the November 2014 assessment) with full implementation by 1 January 2019. The capital buffer requirements for the G-SIBs identified in the annual update each November will apply to them as from January fourteen months later. The assignment of G-SIBs to the buckets, in the list published today, determines the higher capital buffer requirements that will apply to each G-SIB from 1 January 2019.

Total Loss-Absorbing Capacity (TLAC): G-SIBs are required to meet the TLAC standard, alongside the regulatory capital requirements set out in the Basel III framework. The TLAC standard will be phased-in from 1 January 2019 for G-SIBs identified in the 2015 list (provided that they continue to be designated as G-SIBs thereafter).

Resolvability: These include group-wide resolution planning and regular resolvability assessments. The resolvability of each G-SIB is also reviewed in a high-level FSB Resolvability Assessment Process (RAP) by senior regulators within the firms’ Crisis Management Groups.

Higher supervisory expectations: These include supervisory expectations for risk management functions, risk data aggregation capabilities, risk governance and internal controls.

9  Compared with the list of G-SIBs published in 2016, the number of banks identified as G-SIBs remains the same. One bank (Royal Bank of Canada) has been added to and one bank (Groupe BPCE) has been removed from the list. Two banks moved to a higher bucket: both Bank of China and China Construction Bank moved from bucket 1 to 2. Three banks moved to a lower bucket: Citigroup moved from bucket 4 to 3, BNP Paribas moved from bucket 3 to 2, and Credit Suisse moved from bucket 2 to 1.

10  The bucket approach is defined in Table 2 of the Basel Committee document Global systemically important banks: updated assessment methodology and the higher loss absorbency requirement, July 2013. The numbers in parentheses are the required level of additional common equity loss absorbency as a percentage of risk-weighted assets that each G-SIB will be required to hold in 2019.

A new list of G-SIBs will next be published in November 2018

 

Basel Committee’s Adverse Assessment of G-SIBs Risk-Reporting Practices Is Credit Negative

Moody’s says last Tuesday, the Basel Committee on Banking Supervision reported that most global systemically important banks (G-SIBs) have an unsatisfactory level of compliance with the Basel Committee’s principles for effective risk data aggregation and risk reporting.

This assessment is credit negative for G-SIBs because it signals that most still do not have the appropriate quality of risk management practices and decision-making processes that the Basel Committee identified as important following the 2007-09 global financial crisis. The Basel Committee indicated that it is critical for banks and their supervisors to make the full and timely implementation of its principles a priority.

The Basel Committee cited a wide range of examples in which G-SIBs failed to meet the principles. These examples include the following:

  • A lack of structured policies and frameworks to consistently assess and report risk data aggregation and risk reporting implementation activities to the board and senior management.
  • Risk data aggregation and risk reporting policies not approved or fully developed across the global organization.
  • Incomplete IT infrastructure projects aimed at improving data quality and controls by unifying disparate or legacy IT systems
  • Various data quality control deficiencies in areas such as reconciliation, validation checks and data quality standards.
  • Treating implementation of the principles as a onetime compliance exercise rather than a dynamic and ongoing process.
  • Incomplete integration and implementation of bank-wide data architecture and frameworks (e.g., data taxonomies, data dictionaries and risk data policies).
  • An overreliance on manual processes and interventions to produce risk reports, which risk inhibiting a G-SIB’s ability to produce reports quickly in crisis situations.
  • Difficulties in executing and managing complex and large-scale IT and data infrastructure projects, such as resources and funding issues and deficiencies in project management.
  • Static risk management reporting frameworks that do not take full account of strategic planning decisions such as risks pertaining to merger and acquisition activities.
  • An inability to monitor emerging trends through forward-looking forecasts and stress tests.

According to the Basel Committee, half of the G-SIBs were materially non-compliant with, or had not implemented, the principle for the design, building and maintenance of a data architecture and IT infrastructure that fully supports risk data aggregation capabilities and risk-reporting practices. More than half of the G-SIBs involved in the Basel Committee’s assessment were largely or fully compliant with each of the other principles. The report provides details of compliance among the G-SIBs but does not identify specific compliance details of each G-SIB.

The Basel Committee’s report focused on 30 global banks from around the world that were designated as G-SIBs in 2011 or 2012 and which were subject to a January 2016 implementation deadline.

The key challenges that G-SIBs faced when implementing the principles were technical issues and problems determining materiality thresholds. Only one G-SIB achieved full compliance with all principles by the January 2016 deadline, and the committee expected another to have achieved full compliance by the report’s publication date last Tuesday. The Basel Committee expects 24 G-SIBs to achieve full compliance by the end of 2018, while it does not expect four to be fully compliant until a later date.

Supervisors plan to communicate details of the assessment results to G-SIBs’ boards of directors and senior management by June 2017. Supervisory measures that are available include requests for specific remediation action plans and deadlines, independent reviews, increasing supervisory intensity, imposing capital add-ons and restricting business activities.