Thirty large financial institutions with an international dimension, which include four French must significantly strengthen their equity by 2019 due to the risk that their size, their business or their complexity would pose on the all of the international financial system if they were in trouble.
What are the banking establishments known as “G-SIBs?
When the last publication of November 2015, the updated list annually identifies 30financial institutions across four categories of score (bucket). Are referred to as systemic banks which the final score in the evaluation methodology of systemic institutions (last version published in July 2013) proposed by the Basel Committee exceeds 130 basis points or that have been added to the list by expert judgement:
Schéma 1 : Liste des G-SIBs publiée le 3 novembre 2015
The majority of systemic banks, 19 of the 30 banks, lie in the first bucket, while the fourth bucket includes only two banks, JP Morgan and HSBC.
Figure 2: Scores by category (left in pb scale) and total scores (pb right scale) of 30 G-SIBs with data from 31/12/2014 (pb point = Basic)
The more systemic banks have a profile of systematicity widely worn by all of the five categories to the image of JP Morgan, HSBC, Citigroup and even Barclays. On the other hand, the banks located in the 1erbucket have very varied patterns:
Essentially domestic banks whose only trained the presence in the bucket size 1 (Chinese banks mostly);
Banks size close but for which other indicators reinforce the systemic character. Thus, the Group BPCE and Nordea see part of their score pulled by the complexity and interdependence;
Little substitutable banks like Bank of New York Mellon or State Street because of their role as a service provider in financial infrastructure (systems of payment…).
The size of the balance sheet remains the predominant criterion
Size indicator measured according to the same definition as for total exhibitions under Basel III, appears indirectly in the set of indicators. Indeed, the methodology is based on the use of raw data, without correction of the volume associated with the size effect. Therefore, there is a strong correlation between the score and the flag sizefinancial institutions although there is greater variability for the largest banks (>2000 Md€).
Figure 3: Relationship between the flag size G-SIBs and their final score in the methodology of the Basel Committee with data from 31/12/2014
Moreover, by applying the methodology to a sample consisting only of the thirty G – SIBs, 31% of the variance of the final scores can be explained by a linear regression using the size as one explanatory factor.
Systemic institutions: enhanced supervision and regulation
The categorization of these institutions as being systemically important globally alsoimplies compliance with a new TLAC said ratio, which will be endorsed at the next Summit of the G20, and to end the “too big to fail” by bringing together ex ante conditions for a bail-in where the shareholders and creditors bear losses.
In addition, the Basel Committee issued measures of supervision of the SIBs G to improve their practice in the aggregation of risk and reporting data. Thus a set of 14 principles on this subject was published in January 2013 (see diagram 4). Their implementation will strengthen the risk management within systemic banking institutionsand to improve their ability to cope with stress or crisis situations. The timing of implementation of these principles is fixed by January 2016 even if, at present, a majority of the SIBs G believe that they will not comply with that date.