Victor Osakwe gave a presentation on systemically important financial institutions (SIFIs). He defined SIFIs as institutions whose failure could significantly disrupt the financial system and economy. The Basel Committee identifies SIFIs based on their size, complexity, interconnectedness, and lack of substitutes. Basel III established higher capital and liquidity requirements for SIFIs to reduce systemic risk. Osakwe discussed the implementation of Basel III in Europe, the US, and for other SIFIs like insurers. He concluded SIFIs will remain an important topic and Basel IV may introduce even stricter new rules.

1. Osakwe, Victor
Financial Stability Seminar
July 3rd, 2015
The more destructive power an institution has when it fails
determines how important it is for the financial system!
What is a Systemically
Important Institution?
How is it Defined (Basel)

2.  Systemically Important
Financial Institutions
Banks
Non-Bank Entities
(Insurers)
 Evaluation, Conclusion
and Prospect
 Introduction
 Brief History and Definition
 Basel III and
Implementation
European Union
Implementation
United States
Implementation
Overview
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3.  The global financial
crises of 2007-2008
is making the
international
community to be
proactive in
protecting the
global financial
system by
preventing or
limiting the effects
of failure of a
systemically
important financial
institution (SIFI).
Results
Introduction
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4.  A set of rules for regulating the SIFIs are contained in the
Basel report with new versions at different time and
circumstance.
 The Basel Committee and the Financial Stability Board
research and develop policy; advise and recommend as
contained in the Basel reports.
 Each country determines which institution qualifies as a
SIFI.
 The global scale and interconnectedness of financial
institutions make it more difficult to ascertain if a firm is a
SIFI until crisis break out and the effect assessed
Introduction
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5.  1988: World central bankers agreed on a set of
international standards for the regulation of banks.
 1988: The Basel Committee on Banking Supervision (BCBS)
in Basel, Switzerland, published first set of minimum capital
requirements for banks (Basel I).
 1999: The (BCBS) released Basel II for regulating the
activities of banks and other financial institutions.
 Basel II was revised in 2001, 2003, 2004 and 2005. The
implementation began in 2007
 2011: First version of Basel III appeared alongside Basel 2.5.
Brief History
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6.  What is a SIFI? The starting point for identifying a SIFI is having
the assertion that the insolvency of such an institution may
destabilize the financial system and having negative effects
on the real economy (Bongini and Nieri, 2014).
 An institution is systemically relevant if it cannot exit the
market without causing major disruptions to the financial
system.
 Factors used in identifying SIFIs are: size, complexity,
interconnectedness, absence of substitutes for the financial
infrastructure it provides, and global activity(Basel
Committee 2011).
 SIFIs are not only banks but includes insurance companies
and financial market infrastructure providers.
Definition
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7.  It is a global and voluntary regulatory framework on the
adequacy of bank capital, market liquidity risk and stress
testing.
 First version published in late 2011 giving banks
approximately three years to satisfy all requirements.
 Developed in response to the deficiencies in financial
regulation revealed by the financial crisis of 2007-2008.
 Major focus is on the run on the bank risk by requiring
differing levels of reserves for different forms of bank
deposits and other borrowings.
Basel III
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8.  Capital Requirements:
 Leverage Ratio:
 Liquidity Requirements:
Basel III: Key Principles
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9.  Europe: The implementing act of the Basel III agreements in
the European Union has been the new legislative package
comprising Directive 2013/36/EU (CRD IV) and Regulation
(EU) No. 575/2013 on prudential requirements for credit
institutions and investment firms (CRR). The new package,
approved in 2013, replaced the Capital Requirements
Directives (2006/48 and 2006/49); (www.europa.eu).
 U.S.A: The U.S. Federal Reserve will implement substantially
all of the Basel III rules for institutions with assets over US$50
billion as announced in December 2011, Wyatt (2011);
though still on the process of implementation as of January
2014 and with some differences in calculation.
Basel III: Implementation
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10.  The first official version of the G-SIB list was published in
November 2011 and updated yearly (Slovik 2012).
 G-SIBs and D-SIBs headquartered in Europe and USA are
required to submit an updated emergency resolution plan
to their Financial Supervision Authority each year.
 On November 10, 2014; the FSB issued a consultative
document that defines a global standard for minimum
amounts of TLAC to be held by G-SIBs in addition to the
Basel III Capital Adequacy Ratio requirements.
 Criteria for assessing, stress testing and adopting a SIB varies
with country and continent.
Systemically Important Financial Institutions
(Banks)
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11. SIBs: Europe
Entity HQ Country HQ
Currency
FSB-G-
SIB
Total Capital Ratio
Requirement (% of
RWA)
Dexia Group Belgium €, Euro 2011 -
BNP Paribas France €, Euro 2011–
12.5%
(CET1=min.9%)
Crédit
Agricole France €, Euro 2011–
11.5%
(CET1=min.8%)
Banque
Populaire CE France €, Euro 2011–
11.5%
(CET1=min.8%)
Société
Générale France €, Euro 2011–
11.5%
(CET1=min.8%)
Commerzbank Germany €, Euro 2011
10.5%
(CET1=min.7%)
Deutsche Bank Germany €, Euro 2011–
12.5%
(CET1=min.9%)
Unicredit
Group Italy €, Euro 2011–
11.5%
(CET1=min.8%)
ING Bank
Netherla
nds €, Euro 2011–
11.5%
(CET1=min.8%)
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12. SIBs: Europe
Entity HQ Country HQ
Currency
FSB-G-
SIB
Total Capital Ratio
Requirement (% of
RWA)
Banco Bilbao
Vizcaya
Argentaria Spain €, Euro 2012–
11.5%
(CET1=min.8%)
Santander Spain €, Euro 2011–
11.5%
(CET1=min.8%)
Nordea Sweden Kr, Krona 2011–
11.5%
(CET1=min.8%)
Credit Suisse
Switzerla
nd
Fr, Swiss
franc 2011–
12.0%
(CET1=min.8.5%)
UBS
Switzerla
nd
Fr, Swiss
franc 2011–
11.5%
(CET1=min.8%)
Royal Bank of
Scotland
United
Kingdom £, GBP 2011–
12.0%
(CET1=min.8.5%)
Barclays
United
Kingdom £, GBP 2011–
12.5%
(CET1=min.9%)
HSBC
United
Kingdom $, USD 2011–
13.0%
(CET1=min.9.5%)
Lloyds
Banking
Group
United
Kingdom £, GBP 2011
10.5%
(CET1=min.7%)
Standard
Chartered
United
Kingdom £, GBP 2012–
11.5%
(CET1=min.8%)
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13. Entity HQ Country HQ
Currency
FSB-G-
SIB
Total Capital Ratio
Requirement (% of
RWA)
Mizuho FG Japan ¥, Yen 2011–
11.5%
(CET1=min.8%)
Sumitomo
Mitsui Japan ¥, Yen 2011–
11.5%
(CET1=min.8%)
Mitsubishi
UFJ FG Japan ¥, Yen 2011–
12.0%
(CET1=min.8.5%)
Bank of China China
¥ or 元
,Renminbi 2011–
11.5%
(CET1=min.8%)
ICBC China
¥ or 元,
Renminbi 2013–
11.5%
(CET1=min.8%)
Agricultural
Bank of China China
¥ or 元,
Renminbi 2014–
11.5%
(CET1=min.8%)
SIBs: Asia
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14. Entity HQ Country HQ
Currency
FSB-G-
SIB
Total Capital Ratio
Requirement (% of
RWA)
Bank of
America USA $, USD 2011–
12.0%
(CET1=min.8.5%)
Bank of New
York Mellon USA $, USD 2011–
11.5%
(CET1=min.8%)
Citigroup USA $, USD 2011–
12.5%
(CET1=min.9%)
Goldman
Sachs USA $, USD 2011–
12.0%
(CET1=min.8.5%)
JP Morgan
Chase USA $, USD 2011–
13.0%
(CET1=min.9.5%)
Morgan
Stanley USA $, USD 2011–
12.0%
(CET1=min.8.5%)
State Street USA $, USD 2011–
11.5%
(CET1=min.8%)
Wells Fargo USA $, USD 2011–
11.5%
(CET1=min.8%)
SIBs: America
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15.  Insurance companies are perceived to be non-relevant for
financial stability in the past due to relatively low levels of
interconnectedness with the rest of the financial system.
 In October 2014, IAIS published the first-ever global
insurance capital standard; Basic Capital Requirements
(BCR).
 BCR ratio is expected this year but will be reported on a
confidential basis to group-wide supervisors and be shared
with the IAIS for purposes of refining the BCR as necessary.
 From January 2019, all G-SIIs will be required to hold capital
not lower than the BCR plus HLA. This is subject to
jurisdictional regulator and not the FSB/IAIS.
Systemically Important Financial Institutions:
Non-Bank Entities (Insurers)
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16.  Allianz
 AIG
 Assicurazioni Generali
 Aviva
 AXA
 MetLife
 Ping An
 Prudential
 Prudential Financial
G-SIIs
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17.  SIFIs have been in the financial literature for a while, 2007-
08 financial crises brought it to limelight and has continue
to enjoy much attention both from the financial institutions,
regulators, and the academic world.
 There still a fundamental error with Basel reports, it only
expand regulatory base without questioning its main
principles, importantly the ever-growing reliance on
standardized assessments of "credit risk”(Marc Labonte,
2014).
 Implementation of Basel III is 2019 technically but how long
it will be in force is dependent on the necessity and how
soon a new report emerged from the mist.
Evaluation and Conclusion
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18.  Many criticism of Basel III and the developments in the
banking market in recent times suggests stricter rules may
be applied and it won’t be long before the subsequent
framework make its way out and is being labelled Basel IV.
 The BCBS had already released a consultative paper to
seek out views on its plan to change how capital
requirements and market risks are to be calculated.
 Basel IV may include: 1. meeting higher minimum leverage
ratios; 2. highlighting standardised models for calculation
of capital requirements; 3. more detailed disclosure of
available reserves and other financial statistics.
Prospect
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19. Question & Discussion
Thanks for listening!
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