On July 5, 2018, the Basel Committee on Banking Supervision published a revised methodology and the higher loss absorbency (HLA) requirement for the assessment of Global Systemically Important Banks. The revised framework updates and replaces the Basel Committee's July 2013 publication, "Global systemically important banks: updated assessment methodology and the higher loss absorbency requirement."
The Basel Committee committed, on the introduction of the G-SIB framework, to review the framework every three years. It consulted on potential enhancements to the framework between March and June 2017. Following feedback to that consultation, the Basel Committee is proposing no changes to the fundamental structure of the G-SIB framework and states that it is generally recognized that the G-SIB framework is meeting its primary objective of requiring systemically important banks to hold higher capital buffers. The framework is also providing incentives for G-SIBs to reduce their systemic importance.
The proposed revisions to enhance the framework include a timetable for implementation. The revised assessment methodology will apply from 2021, based on end-2020 data. The corresponding HLA requirements based on the revised methodology will apply from January 1, 2023.
The Committee has made the following revisions:
- the definition of cross-jurisdictional indicators has been amended;
- a trading volume indicator has been introduced;
- the weights in the substitutability category have been modified;
- the scope of consolidation to insurance subsidiaries has been extended;
- the disclosure requirements have been revised;
- the framework incorporates further guidance on bucket migration and associated HLA surcharge when a G-SIB moves to a lower bucket; and
- a transitional schedule has been set for the implementation of the enhancements to the G-SIB framework.
The Basel Committee remains committed to the three-year review cycle and will complete the next review of the G-SIB framework by 2021. The Committee proposes to pay particular attention in the next review to the consideration of possible alternative methodologies for the substitutability category, with a view to enabling the cap to be removed at that time.
The revised assessment framework is available at: https://www.bis.org/bcbs/publ/d445.pdf and details of the March 2017 consultation are available at: https://finreg.shearman.com/revised-assessment-framework-for-g-sibs-proposed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
