How to Spot a G-SII
Introduction
On 12 December 2013, the European Banking Authority (EBA) published a consultation paper on draft regulatory technical standards (RTS) on the methodology for the identification of global systemically important institutions (G-SIIs)[1] and draft implementing technical standards (ITS) on uniform formats and dates for the disclose of the values of the indicators used for determining the score of G-SIIS[2]. In addition, the EBA has published draft guidelines proposing that financial institutions with an overall exposure of more than EUR 200 billion should be subject to the same disclosure requirements as G-SIIs.
Identification Methodology
The EBA will use a sample of the 75 largest financial institutions in order to identify the initial list of G-SIIs and allocate them to one of five ‘buckets’, based on the following factors, designed specifically to be consistent with the BCBS global systemically important bank (G-SIB) identification process:
- Size, calculated by reference to total exposure, calculated on a consolidated basis and being the aggregate of:
- Total on-balance sheet items;
- Total derivatives; and
- Off-balance sheet items;
- Interconnectedness, in terms of:
- Intra financial-system assets i.e. the aggregate of:
- Funds deposited;
- Undrawn committed lines;
- Holdings of securities issued by other financial institutions;
- Securities Financing Transactions; and
- OTC derivatives with other financial institutions that have a net positive fair value;
- Intra financial-system liabilities i.e. the aggregate of:
- Deposits by financial institutions;
- Securities financing transactions; and
- OTC derivatives with other financial institutions that have a net negative fair value;
- Securities outstanding;
- Intra financial-system assets i.e. the aggregate of:
- Substitutability
- Assets under custody;
- Payment activity; and
- Underwritten transactions in debt and equity markets;
- Complexity
- Notional amount of OTC derivatives i.e. the aggregate of:
- OTC derivatives cleared through a central counterparty; and
- OTC derivatives settled bilaterally;
- Assets included in level 3 calculations of fair-value; and
- Trading and available-for-sale securities;
- Notional amount of OTC derivatives i.e. the aggregate of:
- Cross border activity:
- Cross-jurisdictional claims; and
- Cross-jurisdictional liabilities.
National authorities also retain a discretion to designate an entity as a G-SII or to allocate a G-SII to a higher ‘bucket’ if they have concluded that its failure would have a significant negative impact on the global financial market and the global economy and have published a detailed statement to that effect to the EBA.
Disclosure
Under the ITS, institutions identified as G-SIIs must publicly disclose the values of the indicators used for determining their G-SII scores using the electronic template published on the EBA website no later than four months after each financial year-end.
Timetable
G-SII identification and disclosure requirements will follow the timetable set out below:
28 February 2014 | Consultation period closes |
March 2014 | EBA to issue a feedback statement on the consultation |
May 2014 | Draft RTS to be finalised |
30 June 2014 | Draft RTS to be submitted by EBA to EU Commission |
1 July 2014 | Draft ITS to be submitted by EBA to EU Commission |
By July 2014 | Sample group of financial institutions to supply data necessary to calculate G-SII rating with respect to most recent financial year end |
1 January 2015 | RTS comes into effect |
14 January 2015 | EBA to determine an initial sample of G-SIIs |
21 January 2015 | National authorities to report G-SII indicator values to EBA based on data provided in July 2014 |
30 January 2015 | EBA to calculate denominators to be used in G-SII identification, based on 2014 numbers |
“Early” 2015 | G-SIIs will be identified based on 2014 scores |
H2 2015 | Update of G-SII scores |
1 Jan 2016 | Higher own funds requirement will apply to G-SIIs identified in Early 2015 |
1 January 2017 | Higher own funds requirement will apply based on H2 2015 scores |
[1] As required by Article 131(18) of the CRD IV Directive
[2] As required by Article 441 of the CRR