How to Spot a G-SII

Introduction

On 12 December 2013, the European Banking Authority (EBA) published a consultation paper on draft regulatory technical standards (RTS) on the methodology for the identification of global systemically important institutions (G-SIIs)[1] and draft implementing technical standards (ITS) on uniform formats and dates for the disclose of the values of the indicators used for determining the score of G-SIIS[2].  In addition, the EBA has published draft guidelines proposing that financial institutions with an overall exposure of more than EUR 200 billion should be subject to the same disclosure requirements as G-SIIs.

Identification Methodology

The EBA will use a sample of the 75 largest financial institutions in order to identify the initial list of G-SIIs and allocate them to one of five ‘buckets’, based on the following factors, designed specifically to be consistent with the BCBS global systemically important bank (G-SIB) identification process:

  • Size, calculated by reference to total exposure, calculated on a consolidated basis and being the aggregate of:
    • Total on-balance sheet items;
    • Total derivatives; and
    • Off-balance sheet items;
  • Interconnectedness, in terms of:
    • Intra financial-system assets i.e. the aggregate of:
      • Funds deposited;
      • Undrawn committed lines;
      • Holdings of securities issued by other financial institutions;
      • Securities Financing Transactions; and
      • OTC derivatives with other financial institutions that have a net positive fair value;
    • Intra financial-system liabilities i.e. the aggregate of:
      • Deposits by financial institutions;
      • Securities financing transactions; and
      • OTC derivatives with other financial institutions that have a net negative fair value;
    • Securities outstanding;
  • Substitutability
    • Assets under custody;
    • Payment activity; and
    • Underwritten transactions in debt and equity markets;
  • Complexity
    • Notional amount of OTC derivatives i.e. the aggregate of:
      • OTC derivatives cleared through a central counterparty; and
      • OTC derivatives settled bilaterally;
    • Assets included in level 3 calculations of fair-value; and
    • Trading and available-for-sale securities;
  • Cross border activity:
    • Cross-jurisdictional claims; and
    • Cross-jurisdictional liabilities.

National authorities also retain a discretion to designate an entity as a G-SII or to allocate a G-SII to a higher ‘bucket’ if they have concluded that its failure would have a significant negative impact on the global financial market and the global economy and have published a detailed statement to that effect to the EBA.

Disclosure

Under the ITS, institutions identified as G-SIIs must publicly disclose the values of the indicators used for determining their G-SII scores using the electronic template published on the EBA website no later than four months after each financial year-end.

Timetable

G-SII identification and disclosure requirements will follow the timetable set out below:

28   February 2014 Consultation period closes
March 2014 EBA to issue a feedback statement on the consultation
May 2014 Draft RTS to be finalised
30 June   2014 Draft RTS to be submitted by EBA to EU Commission
1 July   2014 Draft ITS to be submitted by EBA to EU Commission
By July   2014 Sample group of financial institutions to supply data necessary to calculate G-SII rating with respect to most recent financial year end
1 January   2015 RTS comes into effect
14 January   2015 EBA to determine an initial sample of G-SIIs
21 January   2015 National authorities to report G-SII indicator values to EBA based on data provided in July 2014
30 January   2015 EBA to calculate denominators to be used in G-SII identification, based on 2014 numbers
“Early”   2015 G-SIIs will be identified based on 2014 scores
H2 2015 Update of G-SII scores
1 Jan 2016 Higher own funds requirement will apply to G-SIIs identified in Early 2015
1 January   2017 Higher own funds requirement will apply based on H2 2015 scores

 

[1] As required by Article 131(18) of the CRD IV Directive

[2] As required by Article 441 of the CRR

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