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Financial regulations 23 Nov 2018

Which banks are included in the list of global systemic banks?

The Financial Stability Board (FSB) recently published its list of Global Systemically Important Banks, or G-SIB. A BBVA Research paper takes a look at the three key changes in this year’s list compared to the 2017 list: on the one hand, two banks exit the list and one is included, while, two banks have been shifted to a lower bucket.

This year, the total number of G-SIBs decreases to 29, from 30 one year ago. This change is the result of Nordea and RBS’ removal from the list, both on the list from 2011 to 2017; and the inclusion of French BPCE, which was part of the list from 2011 before exiting in 2017.

BBVA Research also notes that there are two banks that shift to a lower bucket: Bank of America and China Construction Bank.

What is a systemic bank?

For a bank to be considered systemic, it must have the potential to destabilize the economy if it were to fail.  The implication is that if the bank were to disappear from the market, this would have negative consequences for the economy of its home country (Domestic Systemically Important Banks) or for the global economy (Global Systemically Important Banks).  The concept originated with the U.S. bank Lehman Brothers, whose failure was one of the first effects of the financial crisis of 2007.

National supervisors are responsible for deciding – based on the FSB list – which bank is included in or removed from the list and for establishing the capital requirements. Their decision is based on qualitative indicators (supervisor criterion) and quantitative criteria, by means of a threshold that a bank must comply with, which encompasses five dimensions: size, complexity, interconnection, substitutability and globality.

On July 5, the Basel Committee on Banking Supervision (BCBS) published the updated methodology that has been used to compile this list, which will be applied from January 1, 2021, as well as the capital buffer that these companies will be requested to build, which will be applied from January 1, 2023.

The three methodological changes that BBVA Research considers worth noting are  the inclusion of insurance activities in the consolidation perimeter; a new trading volume indicator in substitutability and a change in defining cross-jurisdictional indicators to be consistent with the definition of BIS consolidated statistics.

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