On March 30, 2017, the Basel Committee on Banking Supervision (BIS) issued a consultation proposing changes to the framework employed to designate global systemically important banks (G-SIBs). The consultation also proposes higher capital requirements on G-SIBs. The revised G-SIB assessment framework supersedes the framework proposed by BIS in July of 2013, a process BIS has committed to revisit every three years. This latest revision maintains the previously adopted system assessing the relative systemic importance of internationally active banks based on 12 indicators in five categories, resulting in a score that measures the systemic importance of each bank. The bank's overall score is then mapped to buckets that are associated with a higher loss absorbency (HLA) capital requirement. However, the new consultation proposes some modifications to the framework including:
- Removal of the cap currently applied to the substitutability category;
- Introduction of a new indicator in the substitutability category;
- Expansion of the regulatory scope of consolidation to include insurance subsidiaries;
- Amendment to the definition of cross-jurisdictional indicators;
- Addition of a requirement that banks disclose the indicators used in their “final” G-SIB calculations, which may require restatement in some cases; and
- Clarification that a bank may immediately apply the lower capital surcharge when its G-SIB score declines such that the bank is in a lower capital surcharge bucket.
Wholesale Funding Indicator
The consultation also proposes as an “issue for discussion” and seeks feedback on the potential introduction of a new indicator for short-term wholesale funding. This proposal would add an indicator for short-term wholesale funding as a new, fourth indicator in the interconnectedness category. This treatment would be in contrast to the methodology employed be the U.S. Federal Reserve which provides for two methods for calculating the G-SIB surcharge score, one of which replaces the substitutability category of the Basel framework with a short-term wholesale funding category.
Phase-in of the Revised Framework
Under the transition period proposed by the consultation, the BIS will continue to use the July 2013 framework until the proposed new framework is finalized and approved. The Committee will rely on the July 2013 methodology until the 2018 G-SIB assessment based on end-2017 data. Any revisions announced in November 2017 would take effect in 2019 based on end-2018 data, and the resulting capital requirement would apply as of January 2021.
Comments on this consultation are due by Friday, June 30, 2017.
The full text of the consultation is available via http://www.bis.org/bcbs/publ/d402.pdf