FINS 3650 Topic 7 Part B PJ V6

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FINS 3650 – International banking

Topic 7 Part B: Managing market risk and
liquidity risk
Dr Peter John, peter.kavalamthara@unsw.edu.au
© Dr Peter John

1

Agenda
1. What are G-SIBs?
2. Why we need to identify them?
3. How do we identify them?

© Dr Peter John

Page 2

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Global Systematically Important
Banks (G-SIB)
• A G-SIB is defined as a financial institution whose
distress or disorderly failure, because of its size,
complexity and systemic interconnectedness, would
cause significant disruption to the wider financial
system and economic activity.
• Failure of a G-SIB will have significant impact on
financial institutions in many countries and on the
global economy.
• It is therefore important to reduce the probability of
failure of G-SIBs by increasing their going-concern
loss absorbency.

© Dr Peter John

Page 3

Global Systematically Important
Banks (G-SIB)
• It is therefore important to:
- Assess systematic importance of G-SIBs
- Specify additional regulatory capital
requirements for G-SIBs.

© Dr Peter John

Page 4

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G-SIB: Indicator-based measurement
approach
• Measures the systematic importance of G-SIBs along 5 dimensions: Size of the bank
- Interconnectedness
- Lack of readily available substitutes or financial institution infrastructure
- G-SIB’s global (cross-jurisdictional) activity
- G-SIB’s complexity.
• An equal weight of 20% is assigned to each of these dimensions. • Except for ‘size’, multiple indicators are used for the other dimensions. • For each bank, a score is calculated for each indicator by dividing the bank’s amount by the aggregate amount for the particular indicator summed across all sample banks.

• Banks scoring above a specified cut-off score will be a G-SIB. Supervisory judgement may be used to alter the classification. © Dr Peter John

Page 5

G-SIB: Indicator-based measurement
approach

© Dr Peter John

Page 6

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G-SIB: Bucketing of indicator scores

© Dr Peter John

Page 7

G-SIB: Loss absorbency
requirement

© Dr Peter John

Page 8

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G-SIB: Timetable for implementation

© Dr Peter John

Page 9

List of G-SIBs – November 2013

© Dr Peter John

Page 10

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List of G-SIBs – November 2013

Source: Financial Stability Board

© Dr Peter John

Page 11

Global Systematically Important Banks
(G-SIB)
Essential reading 1 (Topic 7 Part B): Global systemically
important banks: updated assessment methodology and
the higher loss absorbency requirement
• What are the imperatives for establishing GSIBs?
• Critique the approach adopted for identifying GSIBs.
• What are some other possible approaches you
suggest?

© Dr Peter John

Page 12

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