General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
October 26, 2017

OFR published a Viewpoint paper examining the use of a multifactor approach to identify the systemically important banks. The paper argues that a multifactor approach is superior to considering size alone in determining systemic importance.

U.S. bank regulators often use asset-size thresholds, assuming that larger banks pose more risks than smaller banks. An alternative approach, used to identify global systemically important banks (G-SIBs), relies on multiple measures, not just size. Analysis suggests that using such a multifactor approach to identify non-G-SIB U.S. banks for enhanced regulation—one focused on systemic importance—would be an improvement on the asset-size thresholds now used. For large banks that are not G-SIBs, asset-size thresholds are too simplistic to assess systemic importance. For this second tier of banks, a modified version of the G-SIB multifactor approach could help determine the appropriate level of enhanced regulation. European regulators are taking such an approach, a more nuanced way to identify how to subject the banking operations of non-G-SIBs to enhanced standards.

The paper emphasizes that modifications would be needed to overcome two shortcomings of the multifactor approach. The first shortcoming involves substitutability. The current G-SIB approach may understate the systemic importance of some banks that provide critical services. The regulation establishing extra capital surcharges for U.S. G-SIBs either caps or eliminates substitutability measurements. Although the Basel Committee has proposed some modifications, these changes still do not address the concentration of critical services in a bank that substitutability indicators need to capture. More work on substitutability indicators is needed. The second shortcoming is that the existing multifactor approach may understate the risks posed by the U.S. operations of some foreign G-SIBs. The operations of foreign banks’ U.S. branches and agencies are not required to disclose systemic importance indicators annually on the FED Form Y-15, even though some of these firms’ footprints and operations are significant. Some foreign G-SIBs have U.S. intermediate holding companies and branches, but the combined risks of these operations are considered in only one regulation implementing enhanced prudential standards.


Related Link: Viewpoint Paper (PDF)

Keywords: Americas, US, Banking, G-SIB, Systemic Risk, Multi-Factor Approach, Viewpoint Paper, OFR

Related Insights

BCBS Finds Liquidity Risk Management Principles Remain Fit for Purpose

BCBS completed a review of its 2008 Principles for sound liquidity risk management and supervision. The review confirmed that the principles remain fit for purpose.

January 17, 2019 WebPage Regulatory News

HKMA Urges Local Banks to Start Working on FRTB Implementation

HKMA announced that it plans to issue a consultation paper on the new market risk standard in the second quarter of 2019.

January 17, 2019 WebPage Regulatory News

EBA Finalizes Guidelines for High-Risk Exposures Under CRR

EBA published the final guidelines on the specification of types of exposures to be associated with high risk under the Capital Requirements Regulation (CRR). The guidelines are intended to facilitate a higher degree of comparability in terms of the current practices in identifying high-risk exposures.

January 17, 2019 WebPage Regulatory News

MAS Guidelines on Risk Mitigation Requirements for OTC Derivatives

MAS published guidelines on risk mitigation requirements for non-centrally cleared over-the-counter (OTC) derivatives contracts.

January 17, 2019 WebPage Regulatory News

BoE Publishes the Schedule for Statistical Reporting for 2019

BoE published the updated schedule for statistical reporting for 2019. The reporting institutions use the online statistical data application (OSCA) to submit statistical data to BoE.

January 16, 2019 WebPage Regulatory News

PRA Delays Final Direction on Reporting of Private Securitizations

PRA and FCA have delayed the issuance of final direction, including the final template, on reporting of private securitizations, from January 15, 2019 to the end of January 2019.

January 15, 2019 WebPage Regulatory News

SNB Updates Forms on Supervisory Reporting for Banks

SNB published Version 1.7 of reporting forms (AUR_U, AUR_UEA, AUR_UES, AURH_U, AUR_K, AUR_KEA, and AURH_K) and the related documentation for supervisory reporting on an individual and consolidated basis.

January 15, 2019 WebPage Regulatory News

BCBS Finalizes Market Risk Capital Framework and Work Program for 2019

BCBS published the final framework for market risk capital requirements and its work program for 2019. Also published was an explanatory note to provide a non-technical description of the overall market risk framework, the changes that have been incorporated into in this version of the framework and impact of the framework.

January 14, 2019 WebPage Regulatory News

EBA Single Rulebook Q&A: First Update for January 2019

EBA published answers to 13 questions under the Single Rulebook question and answer (Q&A) updates for this week.

January 11, 2019 WebPage Regulatory News

PRA Proposes to Amend Supervisory Statement on Credit Risk Mitigation

PRA published the consultation paper CP1/19 that is proposing changes to the supervisory statement (SS17/13) on credit risk mitigation.

January 10, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2473