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Basel: Measures for ‘all’ systemic firms

Friday 20 January 2012 – by [email protected]

 Extra requirements could be imposed for a range of systemically important firms, including central counterparties, insurers and domestic banks, according to the Basel Committee for Banking Supervision.

Measures should be developed for “all institutions” whose distress or failure would cause significant disruption to the wider economy, Stefan Ingves told a roundtable discussion on Friday.

The basis for imposing specific requirements to address issues posed by the world’s largest banks “is not exclusive” for the banking sector.

“Measures should be developed for all institutions whose disorderly distress or failure, because of their size, complexity and systemic interconnectedness would cause significant disruption to the wider financial system and economic activity,” he told the European Ideas Network seminar on long-term growth.

“These could include financial market infrastructures, insurance companies, other non-bank financial institutions and domestic systemically important banks.”

Despite fierce opposition from the insurance industry, the International Association of Insurance Supervisors has been tasked with identifying whether and how global systemically important insurance firms would face extra regulation.


The Basel Committee is itself looking at whether a measure obliging for the world’s biggest banks to hold extra capital can be extended to ensure that nationally systemically important banks have to meet heightened requirements.

Last year the committee crafted a capital surcharge for the biggest 29 international banks, ensuring they will be obliged to hold up to 2.5 per cent of additional risk-weighted capital depending on factors including their size and complexity.

To be phased in from 2016 until 2019, the measure is aimed to help eliminate the prospect that governments will have to bail out banks that are considered too big to fail.

However Ingves admitted that research from the committee had suggested that banks may need to hold up to 8 per cent of risk-weighted capital above the Basel III minimum to ensure their safety.

The finalised 2.5 per cent figure was in the committee’s “lower half” of prospective measures, he told the roundtable.

He continued: “Our empirical analysis indicates that the costs of requiring additional loss absorbency for G-SIBs are outweighed by the associated benefits of reducing the probability of a systemic financial crisis.

“The committee’s analysis points to additional loss absorbency generally in the range of around 1 per cent to 8 per cent of risk-weighted assets. Our agreed calibration from 1 per cent to 2.5 per cent is in the lower half of this estimated range.”

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