Are G-SIFIs really practical?
Regulators’ ultimate aim is for banks to manage their businesses appropriately, implement sensible risk management, and have sustainable business models. May 24, 2012 | Tiah Wen LiGlobally systemically important financial institutions (G-SIFIs) have cost the US government about $1 trillion, and the central European government even more. At the Asian Banker Summit 2012, Gordian Gaeta, international resource director, The Asian Banker, equated the banking system to the life-blood of the economy, where if it comes to a standstill, the economy collapses. Regulators have since developed what is now known as G-SIFIs – identifying banks that are so large that when they fail, pose systemic risk that may potentially lead to the failure of the entire system. The International Monetary Fund (IMF), Bank of International Settlements (BIS) and the Financial Stability Board (FSB) define systemic risk as “a risk of disruption to financial services that is either caused by an impairment of all or parts of the financial system and has the potential to have serious negative consequences for the real economy.” Hence, a SIFI is simply a too-big-to-fail firm that has the potential to generate systemic risk as a result of its size, interconnectedness and/or lack of substitutability. Figure 1. List of G-SIFIs identified for year 2011 What does it means to be a G-SIFI? Firstly, banks will be required to hold increased capital, ranging from an additional 1% to 3.5%, depending on which bucket the banks have been identified as. The objective of doing this is as a disincentive for large banks to grow even bigger. Banks will also have to produce recovery and resolution plans by the end of the year and can expect more intensive supervision. An FSB peer review council has been developed to ensure full and consistent implementation of measures from these banks. Interestingly, some of the local jurisdictions are already moving towards defining domestic SIFIs (D-SIFIs). The Australian Prudential Regulation Authority (APRA) has coined the ... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
Categories: Asian Banker Summit 2012, Capital & Strategic Issues, Operational Risk, Regulation, Risk and RegulationAsian Banker Summit 2012,Capital & Strategic Issues,Oprisk,riskregulation,Risk and Regulation, Asian Banker Summit 2012,Capital & Strategic Issues,Operational Risk,Regulation,Risk and Regulation, Keywords:G-SIFI, D-SIFI, FSA UK, IMF, BIS, FSB, Christian Hunt, Andrew Kerr, AmBank, Systemic Risk G-SIFI, D-SIFI, FSA UK, IMF, BIS, FSB, Christian Hunt, Andrew Kerr, AmBank, Systemic Risk
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