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
1
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
2
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
3
G-SIB: Bucketing of indicator scores
© Dr Peter John
Page 7
G-SIB: Loss absorbency requirement © Dr
.
.
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
1
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
2
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
3
G-SIB: Bucketing of indicator scores
© Dr Peter John
Page 7
G-SIB: Loss absorbency requirement © Dr