Basel Committee updates global systemically important bank assessment methodology and framework

Federal Issues Basel Committee Bank Regulatory

On July 5, the Basel Committee on Banking Supervision (BCBS), the primary global standard setter for the prudential regulation of banks, released an updated version of its Global systemically important banks: revised assessment methodology and the higher loss absorbency requirement. The BCBS conducted a review of the original framework—first published in 2011 and updated in 2013—and noted that, based on its review, member jurisdictions’ experience, and feedback received during a public consultation last year, “the framework is meeting its primary objective by requiring [global systemically important banks (G-SIBs)] to hold higher capital buffers and providing incentives for such firms to reduce their systemic importance.” BCBS further stated that the core elements of the framework will be maintained to enhance the stability of the regulatory environment following the finalization of the Basel III post-crisis reforms.

Among other enhancements, the framework provides the following updates:

• amends the definition of cross-jurisdictional indicators consistent with the definition of Bank for International Settlements consolidated statistics;
• introduces a trading volume indicator and modifies the weights in the substitutability category;
• extends the scope of consolidation to insurance subsidiaries;
• revises disclosure requirements;
• provides further guidance on bucket migration and associated higher loss absorbency surcharge when a G-SIB moves to a lower bucket; and
• adopts a transitional schedule for the implementation of these enhancements.

The framework is expected to be implemented in member jurisdictions by 2021.