05 June 2014
The European Banking Authority (EBA) published today final draft Regulatory Technical Standards (RTS) on the methodology for identifying Global Systemically Important Institutions (G-SIIs), final draft Implementing Technical Standards (ITS) on special disclosure rules applicable to G-SIIs, and final guidelines on special disclosure rules for large institutions. The identification of G-SIIs in the EU is aligned with the framework established by the Financial Stability Board (FSB) and developed by the Basel Committee on Banking Supervision (BCBS). These standards and guidelines will be part of the EU Single Rulebook in banking and aim at enhancing regulatory harmonisation and disclosure across the EU.
The Capital Requirements Directive, (CRD IV) requires G-SIIs to hold higher capital levels in order to contain the risks they pose to the financial system and the impact that their potential failure may have on sovereign finance and taxpayers, the so-called ‘too big to fail' problem.
The final draft RTS provide consistent parameters and specify a harmonised methodology for identifying G-SIIs across the European Union (EU) and determining their adequate levels of capital. According to the CRD IV, competent authorities in each Member State shall calculate, on an annual basis, an individual score to measure a bank's systemic significance. To this end, the CRD IV defines five categories of indicators to be used in this scoring process. The final draft RTS specify twelve quantifiable indicators falling under these five categories, which ultimately measure the impact that the failure of an institution may have on the stability of the global financial system. The EBA will support competent authorities in carrying out the identification process, ensuring practicability and convergence.
The final draft ITS define uniform requirements for disclosing the values used during the identification and scoring process of G-SIIs. Uniform and enhanced disclosure will ensure fair competitive conditions between comparable groups of institutions, thus resulting in greater convergence of supervisory practices and more accurate risk assessments across the EU. Furthermore, uniform disclosure aims at improving data quality and strengthening market discipline. This level of disclosure goes even beyond the minimum standards required by the BCBS.
Finally, in order to increase transparency in the identification process, the final Guidelines stipulate that not only G-SIIs, but also other large institutions with an overall exposure of more than EUR 200 billion Euro and which are potentially systemically relevant, will be subject to the same disclosure requirement as the G-SIIs. The EBA will act as a central data hub in this disclosure process, thus providing a platform to aggregate data across the whole EU.
Legal basis and next steps
The final RTS, ITS and Guidelines have been developed in accordance with Directive 2013/36/EU (CRD IV), and on the basis of internationally agreed standards, such as the framework established by the FSB, as well as the standards developed by the BCBS.
The identification as G-SII, which leads to a higher capital requirement, will take place in January 2015 for the first time, and the higher capital requirement will apply one year after the publication by competent authorities in each Member State of banks' scoring results so as to allow institutions enough time to adjust to the new buffer requirement.