The Financial Stability Board (FSB) has finally issued its first list of globally systemically important financial institutions (G-SIFIs) – a practice that it will reprise on an annual basis every November from now on – but what can these 29 firms expect in terms of new data requirements and when?
The Cannes summit of G20 leaders last week indicated that the FSB is due to come into some new powers that will allow it to more effectively monitor systemic risk across the globe (a move that the G20 has been talking about for some time, see coverage on which from last month here). One such work stream will be the establishment of a global regulatory data standards framework in order to allow the tracking of counterparty and trade data across the globe. Another will be ensuring that these G-SIFIs have resolution (also known as living wills) and recovery plans in place, so that should the worst happen, they are able to wind up in an orderly fashion.
As I have noted previously, while recovery plans will have a dramatic impact on capital planning and liquidity, both recovery and resolution planning will likely require significant investment in data architecture (see initial comments on which last year here). The capital and liquidity planning required for mandatory resolution plans will entail firms keeping a tight rein on where its liquidity is located and therefore the organisation of counterparty and instrument data will become paramount in a business sense and in identifying counterparties to turn to in a last resort.
This data will need to be readily at hand in order to take action swiftly and effectively, hence an investment in a data infrastructure to store this vital information is needed to replace the heavily siloed infrastructures that are currently endemic across the industry. On this note, the FSB will be checking that these G-SIFIs have the capabilities in place to be able to produce this data quickly (36 to 48 hours to be precise).
Check out the FSB’s paper from October last year to see the full list of requirements and timelines facing those deemed to be systemically important this year – see here.
The G20 summit approved the proposals wholesale, so there are a whole heap of deadlines facing the unlucky 29 over the next five years. At a high level, the 29 firms – 17 originating from Europe, eight from the US and four from Asia – will face:
- 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.
And those firms that managed to miss out on the list this year, can’t rest easy, given that the global body will be going through the same process the same time next year and there is no guarantee who will end up under the microscope.
The full list of 29 G-SIFIs that must meet the resolution related requirements before the end of next year is as follows:
Bank of America
Bank of China
Bank of New York Mellon
Banque Populaire CdE
Barclays
BNP Paribas
Citigroup
Commerzbank
Credit Suisse
Deutsche Bank
Dexia
Goldman Sachs
Group Crédit Agricole
HSBC
ING Bank
JP Morgan Chase
Lloyds Banking Group
Mitsubishi UFJ FG
Mizuho FG
Morgan Stanley
Nordea
Royal Bank of Scotland
Santander
Société Générale
State Street
Sumitomo Mitsui FG
UBS
Unicredit Group
Wells Fargo
I’ll give the FSB the final word: “Going forward, the list of G-SIFIs will be updated each year in November. The additional loss absorbency requirement will apply from 2016, initially to those banks identified in November 2014 as G-SIFIs. These banks will also have to meet the higher supervisory expectations for data aggregation capabilities by January 2016.”
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