Featured Product

    FED Examines Whether G-SIBs in US Influence Their Capital Surcharges

    January 31, 2020

    FED published a note that examines whether and how U.S. global systemically important banks, or G-SIBs, adjust the systemic importance indicators to lower their capital surcharges. Evidence shows that the U.S. G-SIBs mainly reduce one indicator of systemic importance—the notional amount of over-the-counter (OTC) derivatives. G-SIBs lower these amounts in the fourth quarter of each year, the quarter that FED uses to determine G-SIB surcharges.

    Overall, the assessment studied estimates of changes in 13 systemic importance indicators of G-SIBs in the fourth quarter. The estimate of this effect was only statistically significant for the notional amount of OTC derivatives and implies that OTC derivatives held by G-SIBs drop 13.4% relative to non-G-SIBs at year-end, representing a large effect. The note highlights that this seasonal adjustment is stronger at G-SIBs than at other banks and that it became more pronounced after the G-SIB surcharge was introduced. These findings are consistent with the reports that U.S. bank managers have lowered surcharges to a large extent by compressing OTC derivatives—terminating offsetting contracts and replacing them with another contract with the same market risk but a lower notional amount than the terminated contracts. 

    The assessment used bank-level data, with the systemic importance indicators coming from the FR Y-15 report and the quarterly data on bank characteristics collected from the FR Y-9C report. Interest rate OTC derivatives are by far the largest category of OTC derivatives at U.S. banks. In the U.S., the G-SIB surcharge was introduced on January 01, 2016, was fully phased in on January 01, 2019, and is applied to the capital conservation buffer of the bank holding company. G-SIB surcharges incentivize banks to lower their indicators, which may decrease the risks that G-SIBs impose on financial stability, but may also adversely affect the economy, for example, if banks restrict the supply of certain services to reduce these indicators.

     

    Related Link: Note

     

    Keywords: Americas, US, Banking, Capital Surcharge, G-SIBs, OTC Derivatives, Systemic Risk, Regulatory Capital, FED

    Featured Experts
    Related Articles
    News

    RBNZ Publishes Financial Stability Report for May 2020

    RBNZ published the financial stability report for May 2020. This review of the financial system in the country highlights that the economic disruption associated with COVID-19 will present challenges to the financial system.

    May 27, 2020 WebPage Regulatory News
    News

    Regulators and Private Sector Meet to Discuss COVID Policy Responses

    Financial policymakers and international standard-setters met virtually with private-sector executives to discuss international policy responses to COVID-19 pandemic.

    May 26, 2020 WebPage Regulatory News
    News

    HKMA Consults on Supervisory Policy for OTC Derivatives Transactions

    HKMA is consulting on revisions to the Supervisory Policy Manual module CR-G-14 on margin and other risk mitigation standards for non-centrally cleared over-the-counter (OTC) derivatives transactions.

    May 25, 2020 WebPage Regulatory News
    News

    EBA Examines Impact of COVID Crisis on Banking Sector in EU

    EBA published thematic note presenting a preliminary assessment of the impact of COVID-19 outbreak on the banking sector in EU.

    May 25, 2020 WebPage Regulatory News
    News

    HKMA Clarifies Regulatory Treatment of Measures to Ease COVID Impact

    HKMA published a circular, addressed to authorized institutions, on the application of the Basel Committee guidance on certain COVID-related measures.

    May 25, 2020 WebPage Regulatory News
    News

    PRA on Regulatory Capital and IFRS 9 Requirements for Payment Holidays

    PRA provided further information on the application of regulatory capital and IFRS 9 requirements to payment holidays granted or extended to address the challenges arising from COVID-19 outbreak.

    May 22, 2020 WebPage Regulatory News
    News

    PRA Finalizes Policy on Supervisory Approach for Insurance SPVs

    PRA published final policy (in PS13/20) setting out the approach and expectations for authorization and supervision of insurance special purpose vehicles (ISPVs or insurance SPVs).

    May 22, 2020 WebPage Regulatory News
    News

    BoE Publishes Version 2.0.1 of Capital+ XBRL Utility

    BoE published version 2.0.1 of the Capital+ XBRL Utility, along with the related release notes.

    May 21, 2020 WebPage Regulatory News
    News

    HKMA on Fintech Adoption and Innovation by Banks in Hong Kong

    HKMA announced the publication of a report on fintech adoption and innovation in the banking industry in Hong Kong.

    May 20, 2020 WebPage Regulatory News
    News

    BIS on Impact of Increasing Use of Cloud Technology on Cyber Risk

    BIS published a working paper that examines the drivers of cyber risk, especially in context of the cloud services.

    May 20, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5214