The proposed approach to D-SIBs is more principles-based than the quantitative and prescriptive approach to G-SIBs, and therefore allows for much greater national discretion.
Implications for firms
- Banks will need to keep a close eye on how their national authorities intend to develop and apply a capital surcharge approach for D-SIBs.
- This approach could also include other requirements for D-SIBs, such as tougher supervision and tougher requirements on recovery and resolution planning.
- Banks will potentially be subject to D-SIB requirements not only at group level but also on their subsidiaries in other countries.
- Banks will therefore need to assess not only the amount of any additional capital they are required to hold (and other requirements) but also where this additional capital needs to be held.
- For banks in the EU, it remains to be seen how the Commission will propose to implement the G-SIB and D-SIB requirements through EU legislation, and how the resulting capital surcharges will relate to the systemic risk buffer and other macro-prudential tools being introduced through the Capital Requirements Regulation and Directive.
- The insurance supervisors may take a similar principles-based approach to domestic systemically important insurance firms, once the proposals for global systemically important insurance firms are finalised.
The principles
Under the principles proposed by the Basel Committee, national authorities should:
- Focus on the potential impact of the failure of a D-SIB on the domestic economy, taking into account the size, interconnectedness, complexity and substitutability of the bank.
- Take account of any other relevant considerations;
- Publish the method employed to assess the systemic importance of banks in their domestic economy;
- Develop an approach to convert the assessment of systemic importance into a requirement on a D-SIB to hold additional loss absorbency, which should be in the form of common equity tier 1 capital. If there are multiple D-SIBs in an economy they might be subject to different capital surcharges to reflect differences in their systemic importance; and
- Impose the higher of the G-SIB and D-SIB capital surcharges where a bank is both a D-SIB and a G-SIB.
A D-SIB could be either a domestically headquartered bank or a subsidiary of a foreign bank. It would be possible for a subsidiary of a bank in another country to be a D-SIB, even if the parent bank is not itself of systemic importance in its home country.
Timetable
Comments on the consultation document (PDF 56 KB) are due by 1 August 2012.
It is proposed that banks will be required to comply with D-SIB capital surcharges and other requirements from January 2016, in line with the phase-in arrangements for the G-SIB framework.
Peer review
The Basel Committee will review the application of the D-SIB principles through its Basel 3 regulatory consistency assessment programme.