On March 30, 2017, the Basel Committee on Banking Supervision (“BCBS”) issued a consultative document to revise the methodology it uses to measure the systemic importance of internationally active banks.  The BCBS methodology incorporates various quantitative indicators of a bank’s “Cross-Jurisdictional Activity,” “Size,” “Interconnectedness,” “Substitutability,” and “Complexity” to arrive at a single score of each internationally active bank’s systemic importance.  The Financial Stability Board uses the BCBS methodology to identify global systemically important banks (“G-SIBs”) and categorize G-SIBs into different capital “buckets” by which national supervisors are to impose escalating capital surcharges.

Of particular note, the BCBS proposal seeks comment on whether the G-SIB assessment methodology should incorporate a measure of a bank’s reliance on short-term wholesale funding (“STWF”).  In the United States, the Federal Reserve has already incorporated a STWF factor into its G-SIB surcharge rule by introducing a “method 2” for calculating each U.S. G-SIB’s score and capital bucket.  (The Federal Reserve’s “method 1” is based on the BCBS standard.)  The scores of U.S. G-SIBs are generally significantly higher under the Federal Reserve’s method 2 than under its method 1 and the BCBS methodology.…

Continue Reading Basel Committee Proposes Use of Short-Term Wholesale Funding Indicator in G-SIB Surcharge Methodology