2021 List of Global Systemically Important Banks (G-SIBs)

23 November 2021 | PDF full text (157 KB)

The 2021 list of globally systemic banks (G-SIBs) is based on end-2020 data and an assessment methodology designed by the Basel Committee on Banking Supervision (BCBS).

The 30 banks on the list remain the same as the 2020 list. Within the list, three banks have moved to a higher bucket: JP Morgan Chase has moved from bucket 3 to bucket 4, BNP Paribas has moved from bucket 2 to bucket 3 and Goldman Sachs has moved from bucket 1 to bucket 2.

The assignment of G-SIBs to the buckets, in the list published today, determines the higher capital buffer requirements that will apply to each G-SIB from 1 January 2023.

In the near term, the BCBS will review the implications of developments related to the European Banking Union for the G-SIB methodology. In particular, this will include a targeted review of the treatment of cross-border exposures within the Banking Union on the G-SIB methodology.

FSB publishes 2021 G-SIB list

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Ref: 33/2021

The Financial Stability Board (FSB) today published the 2021 list of global systemically important banks (G-SIBs) using end-2020 data and an assessment methodology designed by the Basel Committee on Banking Supervision (BCBS).

The 30 banks on the list remain the same as the 2020 list.

FSB member authorities apply the following requirements to G-SIBs:

  • Higher capital buffer: The G-SIBs are allocated to buckets corresponding to higher capital buffers that they are required to hold by national authorities in accordance with international standards. Compared with the 2020 list, three banks have moved to a higher bucket: JP Morgan Chase has moved from bucket 3 to bucket 4, BNP Paribas has moved from bucket 2 to bucket 3 and Goldman Sachs has moved from bucket 1 to bucket 2.

  • Total Loss-Absorbing Capacity (TLAC): G-SIBs are required to meet the TLAC standard, alongside the regulatory capital requirements set out in the Basel III framework. The TLAC standard began being phased in from 1 January 2019 for G-SIBs identified in the 2015 list that continued to be designated as G-SIBs.

  • Resolvability: These include group-wide resolution planning and regular resolvability assessments. The resolvability of each G-SIB is also reviewed in a high-level FSB Resolvability Assessment Process (RAP) by senior regulators within the firms’ Crisis Management Groups. 

  • Higher supervisory expectations: These include supervisory expectations for risk management functions, risk data aggregation capabilities, risk governance and internal controls.

The BCBS today published updated denominators used to calculate banks’ scores; the thresholds used to allocate the banks to buckets; and the values of the twelve high-level indicators of all banks in the main sample used in the G-SIB scoring exercise. The BCBS also provides the links to the public disclosures of all banks in the full sample of banks assessed.

Earlier this month, the BCBS approved a technical amendment to the G-SIB assessment methodology review process, which replaces the previous three-year review cycle with a process of ongoing monitoring and review.

In the near term, the BCBS will review the implications of developments related to the European Banking Union for the G-SIB methodology. In particular, this will include a targeted review of the treatment of cross-border exposures within the Banking Union on the G-SIB methodology.

A new list of G-SIBs will next be published in November 2022.

Notes to editors

The requirements for G-SIBs summarised above are “higher” in the sense that they are additional to the minimum standards that apply to all internationally active banks under the Core Principles of the BCBS.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Governor, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

FSB Statement to Support Preparations for LIBOR Cessation

22 November 2021 | PDF full text (152 KB)

Completion of the steps laid out in the FSB’s Global Transition Roadmap is now critical and market participants need to act urgently to ensure they are fully prepared for LIBOR cessation by the end of this year.

Most LIBOR panels will cease at the end of this year, with certain key USD settings continuing until end-June 2023 to support the rundown of legacy contracts, executed before January 1 2022, only.

Continued reliance of global financial markets on LIBOR poses risks to global financial stability. With only a few weeks remaining to the end of 2021, it is now critical that market participants act urgently to complete any remaining steps set out in the FSB’s Global Transition Roadmap, with global and national financial regulators closely monitoring progress. The FSB emphasises that the continuation of some key USD LIBOR tenors through to 30 June 2023 is intended only to allow legacy contracts to mature, as opposed to supporting new USD LIBOR activity.

The key points covered in the statement are as follows:

  • Significant progress has been made in transitioning to Risk-Free Rates (RFRs), but market participants still need to finalise preparations to cease new use of LIBOR by end-2021.

  • Transition should be primarily to overnight RFRs, the most robust benchmarks available, to avoid reintroducing the weaknesses of LIBOR.

  • Active transition of legacy contracts remains the best way for market participants to have control and certainty over their existing arrangements.

The report notes that the FSB will continue to monitor the final steps in completing LIBOR transition over the coming months. Post end-2021, the FSB will monitor the effort to continue reducing the stock of legacy contracts which are using synthetic LIBOR rates, any continuing new issuance of USD LIBOR contracts post end-2021, and the size and resolution of legacy contracts referencing USD LIBOR that are due to mature after end-June 2023. The FSB will review these issues in mid-2022 and assess the implications for any further supervisory and regulatory cooperation that may be required.

FSB urges swift action to ensure preparedness for LIBOR cessation

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Ref: 32/2021

The Financial Stability Board (FSB) today published a statement to support preparations for LIBOR cessation.

Most LIBOR panels will cease at the end of this year, with certain key USD settings continuing until end-June 2023 to support the rundown of legacy contracts, executed before January 1 2022, only.

Continued reliance of global financial markets on LIBOR poses risks to global financial stability. With only a few weeks remaining to the end of 2021, it is now critical that market participants act urgently to complete any remaining steps set out in the FSB’s Global Transition Roadmap. Global and national financial regulators will be closely monitoring progress.

Significant progress has been made in transitioning to Risk-Free Rates (RFRs), but market participants still need to finalise preparations to cease new use of LIBOR by end-2021. Considering the significant use of USD LIBOR globally, the FSB continues to believe it is particularly important to reinforce the message and timeline from supervisors globally to ensure there is no interruption to new business and financing. The FSB recognises the widespread use of USD and other LIBORs in emerging markets and developing economies (EMDEs) and therefore considers engagement with EMDEs to be a key part of LIBOR transition globally.

Transition should be primarily to overnight RFRs, the most robust benchmarks available, to avoid reintroducing the weaknesses of LIBOR. The FSB recognises that in some cases there may be a role for RFR-derived term rates and has set out the circumstances where the limited use of RFR-based term rates would be compatible with financial stability. It is crucial that potential alternative rates to LIBOR are especially robust and reflect credible underlying markets underpinned by a sufficient volume of transactions.

The FSB emphasises that active transition of legacy contracts remains the best way for market participants to have control and certainty over their contract terms, and provides a permanent solution and the ability to move to overnight RFRs, compounded in arrears. Synthetic LIBOR is being made available as a temporary bridging solution for legacy contracts only. It should not be directly or indirectly referenced in any new contracts.

The FSB will continue to monitor the final steps in completing LIBOR transition over the coming months.

 

Notes to editors

The FSB set out in 2014 a series of recommendations for strengthening key interbank offered rates (IBORs) in the unsecured lending markets, and for promoting the development and adoption of alternative nearly risk-free reference rates, where appropriate. The FSB and member authorities, through the FSB Official Sector Steering Group (OSSG) co-chaired by Andrew Bailey (Governor, Bank of England) and John C. Williams (President and CEO, Federal Reserve Bank of New York), are working to implement and monitor these recommendations.

In June 2021, the FSB issued a set of documents that outlined recommendations for financial and non-financial firms, as well as authorities, to consider to ensure an orderly transition way from LIBOR by end-2021. In July 2021, the FSB published a progress report to the G20 on LIBOR transition and remaining issues.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Governor, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Digital ID to Enhance Financial Inclusion: A toolkit for regulatory authorities

21 November 2021

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Digital ID systems have the potential to improve the reliability, security, privacy, and efficiency of the process of identifying individuals in the financial sector, to the benefit of both customers and regulated entities. However, digital systems also present a variety of technical challenges and risks of failure. Well-design policies, and digital ID system design that fosters both inclusion and trust, are fundamental to mitigating such risks and guarding against challenges. Driven by the rapid growth in digital payments, which requires a better understanding of how individuals are being identified and verified in the world of digital financial services, the Financial Action Task Force (FATF) released Digital Identity, its guidance on digital ID, in 2020. This document will focus on the policy considerations of digital ID and financial inclusion, building on the 2013 FATF guidance on financial inclusion, the 2018 G20 Digital Identity Onboarding for the G20 Global Partnership on Financial Inclusion, the 2020 digital ID guidance from the FATF, Principles on Identification for Sustainable Development, Enhancing Cross-Border Payments: Building Blocks of a Global Roadmap, and, finally, practical country experience with ID needs and digital ID implementation, where available. This toolkit aims to provide direction for financial-sector regulators on how to leverage digital ID systems and digital ID solutions to enhance Customer Due Diligence practices.

FSB Plenary meets in Basel

18 November 2021

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Ref: 32/2021

The Financial Stability Board (FSB) Plenary met today in hybrid format, with some members attending in person in Basel and others attending virtually. Members discussed vulnerabilities in the global financial system, reviewed issues of particular relevance to Emerging Market and Developing Economies (EMDEs) and agreed the FSB’s work programme for 2022.

Financial stability outlook

The Plenary discussed the outlook for financial stability and any actions needed to address identified vulnerabilities in the global financial system.

Key current vulnerabilities relate to the rise in indebtedness across sovereigns, non-financial corporates and households in response to COVID-19. These include higher debt burdens and the nexus between these three sectors and the financial system. Embedded leverage in the financial system may add to vulnerabilities, as well as risks building up in real estate in a number of jurisdictions. Accommodative financial conditions globally have kept debt servicing costs low and supported asset prices, amid a continued search for yield. Rising interest rates and greater divergence of economic and financial conditions between advanced economies and EMDEs could expose some of these vulnerabilities. The FSB will continue to monitor these risks.

These developments underline the need to reinforce global financial system resilience. Liquidity mismatches, along with other factors, could lead to pressures in some non-bank financial intermediaries under stressed conditions. A progress report on the FSB’s work programme to enhance the resilience of non-bank financial intermediation (NBFI) was published last month. It includes initiatives to assess and address such vulnerabilities, including policy proposals to enhance the resilience of money market funds. Moreover, members recalled the importance of rebuilding macroprudential policy space going forward.

Members also discussed a number of other emerging challenges. These include the financial system’s exposure to the physical and transition risks posed by climate change, and members emphasised the growing vulnerabilities for the financial system from the use of crypto-assets. The FSB will provide an updated assessment of the financial stability implications of crypto-assets to the G20 in February 2022.

Scarring effects from COVID-19

The extraordinary policy response by public authorities has been key to limiting the economic fallout from COVID-19. At the same time, the massive public credit provision (both directly and through loan guarantees) has resulted in an unprecedented level of gross debt in non-financial companies (although in some cases balanced by increased cash holdings), and also in other sectors of the economy. The Plenary discussed the financial stability implications, not only from debt overhang but also from broader risk of scarring effects of the pandemic on the financial system.

The FSB will publish a discussion paper to provide a basis for a dialogue between the public and private sector on emerging policy approaches and industry practices that could prove effective to support a smooth transition out of debt overhang issues.

Issues affecting EMDEs

The FSB held its annual EMDEs Forum to discuss issues of particular relevance to the EMDE members of the FSB and its six Regional Consultative Groups.

A key challenge for EMDEs is managing the exit from COVID-19 support measures against a backdrop of diverging growth patterns across regions and rising long-term interest rates. Many EMDEs face trade-offs between keeping in place measures to support the financing of the real economy, and preserving, or restoring, policy space. Potential cross-border spillovers from an unwinding of COVID-19 measures in advanced economies add to the challenges. The Plenary also discussed the importance of addressing possible longer-term effects of COVID-19 on EMDEs’ financial systems and preserving their ability to support economic growth.

COVID-19 has accelerated the trend toward digitalisation of financial services, particularly in EMDEs. This has helped to alleviate the economic impact of the pandemic by facilitating remote access to financial services, but digitalisation also raises new financial stability issues. Members discussed the implications for financial stability in EMDEs of accelerating digital innovation, including rapidly evolving crypto-asset markets.

Implementation of resolution reforms

The Plenary discussed key issues in completing resolution reforms going forward, including follow-up work to close gaps identified in the evaluation of the effects of too-big-to-fail reforms for systemically important banks. The 2021 Resolution Report, which marks the tenth anniversary of the adoption of the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions, will be published in early December.

FSB work programme

Members discussed the FSB’s work programme for 2022, including deliverables to the Indonesian G20 Presidency. The main priorities for the FSB’s work include: (i) international cooperation and coordination in financial authorities’ response to COVID-19; (ii) enhancing the resilience of the NBFI sector and follow-up to the FSB’s Holistic Review of the March 2020 market turmoil; (iii) containing the risks from the use of crypto technology, including unbacked crypto-assets, stablecoins and decentralised finance, while harnessing the benefits; (iv) assessing and addressing financial risks from climate change; and (v) finalising and monitoring implementation of the post-2008 crisis reforms. The finalised 2022 work programme will be published in January.

Plenary members expressed their gratitude for Randal Quarles’ leadership and commitment in chairing the FSB during the past three years, and look forward to working with Klaas Knot, who will take over as FSB Chair on 2 December 2021.

Notes to editors

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Governor, US Federal Reserve; the FSB’s Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Application Paper on Supervisory Colleges

11 November 2021

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The Application Paper on Supervisory Colleges describes the processes and practices related to the establishment and functioning of supervisory colleges for insurance groups with cross-border activities. In particular, the paper supports observance of Insurance Core Principle (ICP) 3 (Information Sharing and Confidentiality Requirements) and ICP 25 (Supervisory Cooperation and Coordination).

The objective of this Application Paper is to foster an understanding of the work of supervisory colleges and to explain the role and involvement insurers may have in supervisory colleges. This Application Paper, as a publicly available document, focuses on those aspects of supervisory college operations that are most relevant from the perspective of the insurance industry.

The paper was revised from its original version published in 2014 to reflect revisions to ICPs 3 and 25 and the adoption of ComFrame, as well as to include practical experience with establishing and managing supervisory colleges.

Application Paper on Combating Money Laundering and Terrorist Financing

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The purpose of this Application Paper is to provide information and advice on how money laundering (ML) and terrorist financing (TF) can occur within the life insurance sector and on measures to mitigate the associated risks.

The paper supports observance of ICP 22 (Anti-Money Laundering and Combating the Financing of Terrorism) and takes into account the FATF (Financial Action Task Force – the intergovernmental global money laundering and terrorist financing standard setter) Recommendations and their “Guidance for a Risk-Based Approach in the Life Insurance Sector”. The paper was revised from its original version published in 2013 to reflect subsequent developments, including the adoption of a revised ICP 22 and various updates of the FATF Recommendations.

While Insurance Core Principle (ICP) 22 on Anti-money laundering and combating the financing of terrorism (AML/CFT) and the accompanying standards and guidance apply to insurance supervisors, this paper is directed to life insurers and intermediaries.

Effective Implementation of FSB Principles for Sound Compensation Practices and Implementation Standards: 2021 progress report

4 November 2021 | PDF full text (1,012 KB)

Compensation practices in large financial institutions were one of the key contributing factors to the excessive risk-taking that was prevalent in the run up to the 2008 global financial crisis.

This progress report assesses the implementation of the FSB’s Principles and Standards for sound compensation practices and how compensation practices have evolved since 2009.

The report covers the compensation practices of the largest financial institutions in the banking, insurance and asset management sectors. The report describes regulatory and supervisory developments; the functioning of governance mechanisms for compensation by firms; the effective use of metrics/criteria and compensation tools; and legal and regulatory challenges to the effective use of compensation tools.

It highlights uneven progress toward implementing the Principles and Standards, with banks relatively more advanced than insurance and asset management firms. This may reflect the more pressing need for banks to align compensation with risk-taking following the 2008 global financial crisis.

Against this backdrop, this report focuses on:

  • The effectiveness of compensation frameworks. A common approach to assess employee performance and determine variable compensation is to use a balanced scorecard based on key performance indicators, complemented by other inputs. The report notes that it is critical to establish and apply such a framework so that it promotes a sound risk culture in a firm. While in-year adjustments and malus are commonly used, the use of clawback is not widespread due to ongoing legal and practical constraints. The report advocates incorporating clawback terms and severance clauses in employment contracts to enhance their enforceability and effectiveness.

  • Emerging trends. The report notes the increased use of non-financial measures and disclosure of compensation-related information to shape and promote a sound risk culture and positive behaviours, as well as to contribute to robust risk management. Firms are increasingly incorporating environmental, social and governance (ESG) aspects to drive accountability for delivering outcomes. This must be underpinned by robust governance, as the increasing application of non-financial measures requires the Board and internal control functions to use discretion and judgement appropriately.

  • Experience during the COVID-19 pandemic. The report finds that most existing compensation frameworks, and associated governance mechanisms, have demonstrated sufficient flexibility to date. However, while banking authorities in most jurisdictions have powers to direct firms to hold back and/or limit bonuses, especially in cases where there are concerns about capital conservation, or to increase deferral periods, this is much less prevalent in the asset management and insurance sectors.

FSB highlights implementation progress and gaps on effective compensation practices in financial institutions

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Ref: 31/2021

The Financial Stability Board (FSB) today published a progress report on the implementation of its Principles for Sound Compensation Practices (Principles) and their Implementation Standards (Standards) in financial institutions.

The report covers the practices of the largest financial institutions in the banking, insurance and asset management sectors. It highlights uneven progress toward implementing the Principles and Standards, with banks relatively more advanced than insurance and asset management firms. This may reflect the more pressing need for banks to align compensation with risk-taking following the 2008 global financial crisis.

Against this backdrop, this report focuses on:

  • The effectiveness of compensation frameworks. A common approach to assess employee performance and determine variable compensation is to use a balanced scorecard based on key performance indicators, complemented by other inputs. The report notes that it is critical to establish and apply such a framework to promote a sound risk culture in a firm. While in-year adjustments and malus are commonly used, the use of clawback is not widespread due to ongoing legal and practical constraints. The report advocates incorporating clawback terms and severance clauses in employment contracts to enhance their enforceability and effectiveness.

  • Emerging trends. Non-financial measures and disclosure of compensation-related information are increasingly used to shape and promote a sound risk culture and positive behaviours, as well as to contribute to robust risk management. Firms are increasingly incorporating environmental, social and governance (ESG) aspects to drive accountability for delivering outcomes. This must be underpinned by robust governance, as the increasing application of non-financial measures requires the Board and internal control functions to use discretion and judgement appropriately.

  • Experience during the COVID-19 pandemic. The report finds that most existing compensation frameworks, and associated governance mechanisms, have demonstrated sufficient flexibility to date. However, while banking authorities in most jurisdictions have powers to direct firms to hold back and/or limit bonuses, especially in cases where there are concerns about capital conservation, or to increase deferral periods, this is much less prevalent in the asset management and insurance sectors.

Notes to editors

The 2008 global financial crisis highlighted that compensation practices in large financial institutions were one of the key contributing factors to the excessive risk-taking that was prevalent in the run up to the crisis. Following the crisis, the FSB developed the Principles and Standards to promote sound compensation practices and align compensation with prudent risk-taking at significant financial institutions. The Principles and Standards require the financial industry to align employee incentives with risk and profitability of the firm over different time horizons.

This is the FSB’s seventh progress report on the implementation of the Principles and Standards. The report describes regulatory and supervisory developments; the functioning of governance mechanisms for compensation by firms; the effective use of metrics/criteria and compensation tools; and legal and regulatory challenges to the effective use of compensation tools. It incorporates input from FSB jurisdictions and covers the period 2020-21, including the COVID-19 pandemic. It also incorporates insights from an industry workshop held in May 2021.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Governor, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.