Posts tagged: GSIBs

Capitalization Ratios for Global Systemically Important Banks (GSIBs)

Source: Federal Reserve Y-9C Reports, Securities and Exchange Commission Form 10-K, SNL Financial (Data update as of September 12, 2016).


Tier 1 Capital is a measure of bank’s financial strength, and assigns different weightings to less risky assets. It also includes other instruments that can absorb losses, rather than just focusing on the value of the bank’s equity capital. US regulators have traditionally focused on the leverage ratio, while European regulators have focused on Tier 1 Capital.

The leverage ratio is a measure of a bank’s financial sustainability, and shows how much equity capital a lender has against assets such as loans. Regulators like the leverage ratio because it’s a fairly simple measure of how active a bank is compared to its equity capital and is difficult for a lender to manipulate. The US calculation includes the amount of derivatives banks have on their books. A higher percentage suggests a bank is in a better position to weather losses and defaults.

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The official list of banks that are too big to fail

As a response to the great reсession, the G20 countries set up the Financial Stability Board, a global watchdog for financial institutions. One of its responsibilities is to identify the banks that can’t go bust without causing a domino effect. The FSB calls such institutions global systemically important banks, or GSIBs.

The banks are split into buckets, with each corresponding to higher loss absorbency requirements based on how important to the global financial system the bank is. The higher the number, the more important the bank and the more capital it will be required to hold. Here’s the full list updated on Nov. 3, 2015:

too big to fail GSIBs

There’s only one change this year — the Spanish lender BBVA is out, and the China Construction Bank is in, reflecting the way that the world economy is changing. Other than that, all the groups stay the same — bucket Nos. 2, 3, and 4 are still precisely where they were.

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