Could SIFIs have totally the wrong effect?
David Millar, risk consultant and trainer and former COO at global risk management association, PRMIA, looks at the impact of local SIFIs in Asia and questions whether the designation is achieving what was hoped for. March 02, 2012 | David MillarThere is a football club in London called Millwall FC. They are renowned for their often brutal approach to tackling and to the energetic nature of their fans. I won’t call them anything worse as I live nearby. The fans have an anthem “Everybody hates us but we don’t care” For them notoriety has become a badge of honour. At the end of last year the FSB, under the instructions of the G-20, introduced the concept of globally systemically important financial institutions (G-SIFIs – read our commentary here). The Bank for International Settlements (BIS) put together a qualification test and created an initial list of 29 G-SIFIs (the test is public although, sadly and not transparently, the workings for the G-SIFIs are not). These were therefore the global banks that were considered so important and strategic to global markets that they could not be allowed to go under. Although the list is a trial at the moment, when it goes live in 2016, the banks then on the list will have to allocate extra capital (from 1 to 2.5% made up of common equity Tier 1 funds) and comply with extra conditions, the principle of which is the creation of “living wills” - recovery and resolution plans designed to facilitate an orderly break-up of the bank should it get into serious trouble. The 29 banks were broken up into five groups in order of “SIFIness” with the top group empty and carrying a 3.5% charge – presumably for the really serious bad boys. In January the FSB announced that it expected regional regulators to set up their own list of local SIFIs, those banks which were not on the global list but would have serious implications on the local and regional economy should they fail. Examples of this would be any of the Singaporean banks or the big Chinese banks as, with the exception of the Bank of China, none of these had made it onto... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
Categories: Regulation, Risk and Regulationriskregulation,Risk and Regulation, Regulation,Risk and Regulation, Keywords:G-SIFI, SIFI, Lehman, G20, Tier 1 Capital, Jose Maria Roldan G-SIFI, SIFI, Lehman, G20, Tier 1 Capital, Jose Maria Roldan
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