Is there a special regime for domestic and/or globally systemically important banks?
Banking & Finance (2nd edition)
The BWG provides for a special capital buffer regime for national Global Systemically Important Institutions (sec 23b BWG) and Systemically Important Institutions (sec 23c BWG). The FMA can require SIIs (by FMA Regulation) to implement a capital buffer proportional to the CET 1 in addition to the capital requirements set out in Article 92 CRR.
Regarding the domestic or otherwise other systematically important institutions (‘’O-SII’’) and globally systematically important institutions (‘’G-SII’’), the CBC recognises a special regime:
- by setting the additional G-SII capital buffer that each G-SII credit institution must maintain, and
- by setting the additional O-SII capital buffer that each O-SII institution must maintain.
Specific criteria and regulation in respect of global systemically important institutions (G-SIIs) and other systemically important institutions (O-SIIs) exist. G-SIIs are defined as institutions whose insolvency can endanger the global financial markets. G-SIIs are defined at an international level by the international Financial Stability Board in consultation with the Basel Committee on Banking Supervision and national authorities. Nordea Bank Oyj is currently the only G-SII in Finland but will lose its G-SII status on 1 January 2020 by decision of the international Financial Stability Board and the FFSA.
O-SIIs are defined as credit institutions whose insolvency could have a highly negative impact on the entire financial system. The Act on Credit Institutions requires that the FFSA designates the O-SIIs in Finland and the additional capital requirements to be imposed on them.
G-SIIs and O-SIIs are further subject to separate regulations on capital buffers and remuneration as set out above in questions 9 and 10.
The ECB supervises systemically important financial institutions. In France, these institutions are point out by the ACPR so that special supervision measures as additional capital requirement can be applied to them in order to reduce the risks involved.
The Regulation on Systemically Important Banks (the “SIB Regulation”) sets forth the criteria for the determination of systemically important domestic banks (the “SIBs”) and such determination shall be made on an indicator based measurement approach comprising of the indicators reflecting the (i) size; (ii) interconnectedness; (iii) complexity; and (iv) substitutability of a bank. The calculation pertaining to the systemic importance of a bank shall be based on the consolidated financial data belonging to the previous year and be re-calculated each year.
Pursuant to the SIB Regulation, SIBs shall maintain a ‘SIB buffer’ to be calculated based on the ratios set forth under the SIB Regulation, for a period of 1 year following the determination of such banks as a SIB. Furthermore, SIBs are subject to additional core capital requirements to be determined based on the SIB buffer ratios (and the risk weighted assets on a consolidated basis) in addition to the additional core capital requirements set forth under the CM Regulation.
The SIB Regulation envisages different SIB buffer ratios applicable to each group of SIBs. As such, SIB buffer ratios are determined as (i) 1% for the 1st group, (ii) 1.5% for the 2nd group; (iii) 2% for the 3rd group and (iv) 3% for the additional 4th group to be established if need be.
Yes, Swiss systemically important banks must meet special capital requirements (quantity and quality, see above at Question 12.), liquidity requirements (see above at Question 14.), risk diversification re-quirements (measured against their CET1 rather than their total capital) as well as emergency planning requirements. G-SIBs and D-SIBs also have to comply with a gone concern requirement (see at Question 25.).
NBS as regulator shall identify credit institutions qualifying globally or systematically important taking into account certain features of the given institutions, such as – among others – the size and complexity of the group and cross-border activities. The NBS shall also allocate global systemically important credit institutions in six sub-categories. According to the AOB, credit institutions allocated to the lowest sub-category shall maintain a capital buffer of 1 % of the total risk exposure amount calculated in accord-ance with the CRR for global systemically important credit institutions. The buffer assigned to each sub-category shall increase in gradients of 0.5 % to and including the fourth sub-category, but the credit insti-tutions allocated to the highest sub-category shall be subject to a buffer of 3.5 %.
Yes. Germany is participating country in the EU’s Single Supervisory Mechanism (SSM) and as such, significant banks having their seat in Germany are under direct supervision of the ECB.
There is no special regulatory regime for domestic systemically important banks, although certain banking regulation are applied differently on large Israeli banks.
In line with Basel standards, MAS has published on its website, its framework for Domestic Systemically Important Banks. These being banks that have been assessed to have a significant impact on the Singapore financial system and the broader functioning of the Singapore economy.
The FSA designated three banking groups as globally systemically important banks (G-SIBs) and two banking groups as domestic systemically important banks (D-SIBs) in 2015. Both categories are subject to capital surcharge and are required to maintain higher Common Equity Tier 1 ratios.
G-SIBs and D-SIBs are also required to have recovery and resolution plans, and to comply with the Principles for Effective Risk Data Aggregation and Risk Reporting issued by the Financial Stability Board (FSB).
Under the FSA’s Supervisory Guidelines, G-SIBs are required to establish a nominating committee, an audit committee and a compensation committee (see No. 10), or have each of their major banking subsidiaries appoint an independent director.
Oman has adopted the Basel III standards and the CBO has issued the Basel III Capital Adequacy guide-lines to all Omani banks, stating the minimum requirements for capital adequacy and capital conservation buffers. Oman’s ‘systematically important’ banks are required to maintain additional capital coverage. Accordingly, a concept called domestic systemically important banks (D-SIBs) was coined by the Basel Committee which evolved an empirical mechanism through which such banks which are at systemic risk could be identified in any jurisdiction. Based on the recommendations of the Basel Committee on Bank-ing Supervision (the “BCBS”), the CBO requires such banks to follow an enhanced regulatory and super-visory regime to reduce their probability of failure through adhering to the requirements of the BCBS.
Those banks identified as D-SIBs must, amongst other things, hold rigorous stress testing exercises and have in place well-defined early warning and crisis management mechanisms, in addition to a compre-hensive risk appetite framework. Additionally, the enhanced capital surcharge for D-SIBs in Oman is set at 1 per cent, which will be enforced in phases.
Yes, the Decree N174/04 of the President of National Bank of Georgia determines the domestic systemi-cally important commercial banks and establishes systemic buffers for them. In addition, the By-law on the Requirements of Capital Adequacy and the Corporate Governance Code for the Commercial Banks provide special rules and requirements for systemically important banks.
Liechtenstein has transposed the CRD/CRR framework (e.g. systemic risk buffer), but has not implemented further specific provisions in this regard.
Yes. Under the Financial Sector Law, the CSSF is responsible for identifying global systemically important institutions (the "G-SIIs") authorized in Luxembourg. As of December 2018, none of the banks authorized in Luxembourg qualified as a G-SII.
The CSSF's Regulation No. 18-06 identifies eight of Luxembourg’s largest banks as other systemically important institutions (the "O-SIIs"), seven of which are charged with 0.5% O-SII capital buffers and the eighth with a 1% O-SII capital buffer.
Banco de Portugal is responsible for the identification of globally systemically important banks (G-SIIs) on a consolidated basis and other systemically important banks (O-SIIs) on an individual, subconsolidated or consolidated basis (where applicable).
G-SIIs are identified according to a methodology based on the following criteria:
a) size of the group;
b) interconnectedness of the group with the financial system;
c) substitutability of the services or of the financial infrastructure provided by the group;
d) complexity of the group;
e) cross-border activity of the group.
G-SIIs are allocated into five different sub-categories. Each G-SII shall maintain (on a consolidated basis) a G-SII buffer consisting of Common Equity Tier 1 Capital which, in its turn, shall correspond to the sub-category to which the G-SII is allocated.
O-SIIs are identified according to an assessment based on at least one of the following criteria:
b) importance for the economy of the European Union or of Portugal;
c) significance of cross-border activities;
d) interconnectedness of the credit institution or group, as applicable, with the financial system.
Banco de Portugal may require each O-SII to maintain an O-SII buffer consisting of Common Equity Tier 1 capital of up to 2% of the total risk exposure amount. When requiring an O-SII buffer to be maintained, Banco de Portugal shall review that requirement annually and ensure that it does not entail disproportionate adverse effects on the whole or parts of the financial system of other Member States or of the Union, forming or creating an obstacle to the functioning of the internal market.
There are three domestic systemically important banks in Malta, referred to as Other Systemically Important Institutions (“O-SII”). Such O-SIIs are subject to an additional capital buffer which is aimed at mitigating the vulnerability of the domestic financial system and the real economy to the failure of systemically important institutions. The O-SII capital buffer is a macro-prudential tool legally embedded in the CRDIV/CRR framework which, in turn, has been domestically transposed in Central Bank of Malta Directive No. 11 and MFSA Banking Rule 15. The O-SII buffer consists of a capital surcharge applied to institutions that may, in the event of failure or impairment, have considerable impact on the financial system and the real economy. This additional capital buffer is applied to domestically significant institutions to increase their resilience by increasing their loss absorbing capacity and thus ensuring that they pose minimal risk to the domestic economy in the form of externalities.
There are no known ‘special regimes’ for banks whether national or international, nonetheless, local companies are given further support in comparison to non-locations because of Qatar’s 2030 vision and the countries long held ambition to support local businesses.
All the EU regulatory requirements (e.g. Directive 36/2013) and EU level banking sector guidelines (i.e. EBA guidelines) for domestic systemically important banks apply. No globally systemically important banks exist in the Romanian market.
Special regime for domestic systemically important banks exists in the procedure of bank resolution initiat-ed by the National Bank of Serbia. In case of a systemically important bank, it is considered that the bank resolution is in public interest, which is one of the conditions for the initiation of this procedure.
Certain parts of UK regulation (for example in relation to TLAC) deal specifically with globally systemically important banks (with the UK being home to 5 of them)
Yes. Large financial institutions generally pose the greatest risk to the financial system due to their size, complexity and interconnectedness, and they are accordingly subject to heightened regulation in the US. The largest and most complex bank holding companies and nonbank financial companies designated by the US Financial Stability Oversight Council as ‘systemically important’ (systemically important financial institutions or SIFIs) are subject to FRB supervision and significantly heightened prudential requirements.
Institutions with total consolidated assets of at least $50 billion that have not been designated as ‘systemically important’ are subject to some heightened expectations to a lesser degree than institutions that have received the designation. Foreign banking organizations with consolidated US assets in excess of $50 billion (other than as part of their branch or agency) are required to have an intermediate bank holding company that holds their US assets subject to comprehensive US supervision. The threshold for US banking organizations may rise to $100 billion in 2019, should the proposed FRB rule noted in response to Questions 13 and 14 be adopted as proposed.
Yes. As a result of the SSM (i) significant banks having their registered office in Italy are under are under direct supervision of the ECB and (ii) the banks qualified as less significant institutions are supervised by the Bank of Italy.
The BoT adopted a supervisory framework for Domestic Systemically Important Banks (D-SIBs). In 2017, BoT has issued the press release on regulations on supervision of domestic systemically important banks by requiring them to maintain higher capital to better absorb losses from their operations.
Based on the indicators prescribed by BoT, 5 commercial banks are identified as D-SIBs, namely Bangkok Bank, Krung Thai Bank, Bank of Ayudhya, KASIKORNBANK, and the Siam Commercial Bank.
D-SIBs are required to maintain additional 1% of common equity tier 1 above the current minimum requirement. This new requirement will be phased in starting at 0.5% in January 2019 moving to 1% in January 2020. Additionally, D-SIBs are subject to more rigorous supervisory measures, such as, additional reporting requirements. Presently, all D-SIBs are robust, maintaining capital ratios significantly above the level prescribed by BOT.
Slovenia is participating in the EU’s Single Supervisory Mechanism (“SRM”), which supervises banks that are considered as significant (there are eight significant banks in Slovenia). Supervision of the significant banks is carried out by Bank of Slovenia and ECB, whereby Bank of Slovenia only participates and ECB makes the supervisory decisions.
In accordance with the Slovenian Banking Act and Regulation (EU) No. 1024/2013, Bank of Slovenia also has the power to determine banks, which are global systemically important banks (“G-SIB”) and other systemically important banks (“O-SIB”).
A G-SIB is obliged to maintain a G-SIB buffer appropriate to the G-SIB sub-category (namely, from 1% of the total risk exposure amount to the 3.5% of the total risk exposure amount), satisfying the requirement with Common Equity Tier 1 capital. An O-SIB must also maintain an O-SIB buffer, which may be set out in the amount of 2% of the total risk exposure amount and must be satisfied with Common Equity Tier 1 capital.