Alert November 15, 2011

Financial Stability Board Announces Policy Measures to Address Global Systemically Important Financial Institutions

The Financial Stability Board (“FSB”) announced policy measures to address the risks to the global financial system posed by certain large, complex financial institutions known as global systemically important financial institutions (“G-SIFIs”).  The FSB also identified the initial group of 29 G-SIFIs, including eight U.S.‑headquartered institutions.  The policy measures for G-SIFIs include:

  • A new international standard as a point of reference for reforms of national resolution regimes, to strengthen authorities’ powers to resolve failing financial firms in an orderly manner and without exposing the taxpayer to the risk of loss;
  • Requirements for resolvability assessments, recovery and resolution plans and institution-specific cross-border cooperation agreements for G-SIFIs;
  • Requirements for additional loss absorption capacity above the Basel III minimum for global systemically important banks; and
  • More intensive and effective supervision through stronger supervisory mandates, and higher supervisory expectations for risk management functions, risk data aggregation capabilities, risk governance and internal controls.

G-SIFIs will be subject to an additional capital requirement to hold between 1% to 2.5% of risk-weighted assets, above the minimum requirements set under the Basel III capital accord, with the amount of additional capital depending on each institution’s systemic importance.  In addition, any G-SIFI which becomes larger in the future, posing an even bigger threat to the stability of the global financial system, may be subject to a higher 3.5% additional capital requirement.  The additional capital requirements will be based on G‑SIFIs identified in November 2014, not on the current list released by the FSB, and will be phased in starting in January 2016 with full implementation by January 2019.  G‑SIFIs must also meet higher supervisory expectations for data aggregation. The FSB stated that the FSB and Basel Committee on Banking Supervision have assessed the macroeconomic impact of higher loss absorbency requirements for G‑SIFIs, and that the benefit of greater resilience of these institutions is expected to exceed the temporary decline of GDP during the implementation process.