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G-SIBs 2014- the scores are in

The FSB and BCBS have released the 2014 update of global systemically important banks (G-SIBs) as well as their respective positions in the bucketed list of additional loss absorbency add-on requirements. The BCBS has also separately published the annually updated list of the denominators used to calculate the banks’ scores and the corresponding bucket allocation thresholds, accompanied by a technical summary of its calculation methodology. The assessment utilises an indicator-based approach, comprising five broad categories: size, degree of interconnection, lack of substitutability, cross-border activity and complexity. Required loss absorbency additions to CET 1 capital range from 1% to 2.5%; the most punitive 3.5% bucket remains empty, presumably succeeding in deterring the inflation of systemic importance.

Changes from the November 2013 update are relatively minor. Group Credit Agricole and UBS are “winners”, upgrading from bucket 2 to 1 with a consequent down grade of their capital add-on from 1.5% to 1.0%. The only “loser” in the update is the Agricultural Bank of China, a new entrant to the G-SIB list, joining it in bucket 1 with a 1% loss absorbency add-on. The addition to the list brings the total number of G-SIBs to 30.

Loss-absorbency add-ons form part of the overall Basel-III G-SIB solution, which also includes annual assessment of group-wide resolution and resolvability planning, as well as enhanced supervision in respect of risk management and governance, data aggregation and internal controls. The requirements will begin to be phased-in from 1 January 2016, with full implementation by 1 January 2019. Loss-absorbency requirements allocated by each annual November update will apply as from January fourteen months later.

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