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After three years on top, JPMorgan – the largest US bank by assets and market cap – was dethroned in November 2020 from its position as the world’s most systematically important bank.
As a reminder, while some might see CEO Jamie Dimon ‘flexing’ over Elon Musk (and others), being the most systemically-important bank is more of a curse, forcing the bank to pay a higher capital burden due to its massive balance sheet (Chinese banks which are generally bigger have explicit state support and as such as broadly viewed as less risky).
And now, JPMorgan is back on top (and paying the price) as the Basel-based Financial Stability Board released its latest annual rankings of systematically important banks, which saw JPMorgan upgraded from Bucket 3 (where it sat with Citigroup and HSBC with a 2.0% capital buffer) to Bucket 4, leaving it the sole bank to face a 2.5% additional buffer.
Goldman Sachs and BNP Paribas also increased one level in this year’s assessment, which lists 30 firms deemed global systemically important banks. The lenders included remain the same as the 2020 list.
For the U.S. firms, the exercise is somewhat symbolic as they already have higher requirements than those recommended by the FSB.
Deutsche Bank, which once headed the list remains in the the 2nd, less risky bucket, which requires a 1.5% capital buffer.
According to Bloomberg, the latest list is based on data from the end of 2020.
Participation in the FSB list is hardly a bragging point: inclusion of a banks means more stringent capital demands and closer scrutiny of their risk management. FSB member authorities apply the following requirements to G-SIBs:
- Higher capital buffer: Since the November 2012 update, the G-SIBs have been allocated to buckets corresponding to higher capital buffers that they are required to hold by national authorities in accordance with international standards. The capital buffer requirements for the G-SIBs identified in the annual update each November will apply to them as from January fourteen months later. The assignment of G-SIBs to the buckets, in the list published today, therefore determines the higher capital buffer requirements that will apply to each G-SIB from 1 January 2023.
Total Loss-Absorbing Capacity (TLAC): G-SIBs are required to meet the TLAC standard, alongside the regulatory capital requirements set out in the Basel III framework. The TLAC standard has begun being phased-in from 1 January 2019 for GSIBs identified in the 2015 list that continued to be designated as G-SIBs.
Resolvability: These include group-wide resolution planning and regular resolvability assessments. The resolvability of each G-SIB is also reviewed in a high-level FSB Resolvability Assessment Process (RAP) by senior regulators within the firms’ Crisis Management Groups.
Higher supervisory expectations: These include supervisory expectations for risk management functions, risk data aggregation capabilities, risk governance and internal controls.
The FSB panel, which recommends changes that national supervisors may implement, said shifts in the rankings reflect underlying changes in banks’ activity. The FSB is chaired by The Fed’s Randy Quarles, and includes representatives from authorities including the European Central Bank and Bank of England.
Tue, 11/23/2021 – 15:25