Context:
Financial Stability Board (FSB) published the list of Global Systemically Important Banks (G-SIBs) 2023 in consultation with Basel Committee on Banking Supervision (BCBS) recently.
What is G-SIB?
- Bank whose systemic risk profile is deemed to be of such importance that the bank’s failure would trigger a wider financial crisis and threaten the global economy.
- Criteria for selecting G-SIBs –
- Higher capital buffer
- Total Loss-Absorbing Capacity (TLAC)
- Resolvability
- Higher supervisory expectations
- Placed in 5 different buckets corresponding to required levels of additional capital buffers.
- At Present – 29 G-SIBs
- Such as JP Morgan, Citibank, HSBC, Bank of America, Bank of China, Barclays, BNP Paribas, Deutsche Bank, Goldman Sachs etc.
- India and G-SIB –
- G-SIBs has to maintain additional Common Equity Tier 1 Capital (CET1), proportionate to its Risk Weighted Assets (RWA).
- There is no Indian bank in it.
Basel III accord introduced a regulation that requires commercial banks to maintain a minimum capital ratio of 8%, 6% of which must be Common Equity Tier 1.
Domestic Systemically Important Banks (D-SIBs):
- Established by – RBI
- Selection of D-SIBs (2 Step process) –
- Sample Set – If a bank is more than 2% of the GDP.
- Banks that have a systemic importance above a certain threshold are designated as D-SIBs.
- Segregation –
- These are placed under 5 different buckets.
- Current D-SIBs –
- SBI (Bucket 3)
- ICICI Bank and HDFC bank (Bucket 1)
- It has to maintain additional CET1 requirements ranging from 0.20% to 0.80% of RWA.
- A D-SIB in the lower bucket will attract a lower capital charge and vice-versa.
A capital charge, imposed on an agency, is intended to act as a replacement for interest expenses and a return on capital, and it should at least cover the government’s borrowing costs.
About FSB:
- An international body that monitors and makes recommendations about the global financial system.
- Headquarters – Basel, Switzerland
- Established in 2009 (endorsed by G20) – Successor to the Financial Stability Forum.
- India – Member of FSB.
Source: FSB
Previous Year Question
With reference to ‘Urban Cooperative Banks’ in India, consider the following statements:
1. They are supervised and regulated by local boards set up by the State Governments.
2. They can issue equity shares and preference shares.
3. They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966.
Which of the statements given above is/are correct?
[UPSC Civil Services Exam – 2019 Prelims]
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
Answer: (b)
