The U.S. has the dubious honor of having the most banks on the official “too-big-to-fail” list in 2015.
The annually updated list, published on Tuesday by the Financial Stability Board, the global financial watchdog, shows a total of eight U.S. banking mastodons are considered to be among “global systemically important banks”—a.k.a. too big to fail—that pose a threat to the global economy and financial stability if they were to collapse.
U.S.-based J.P. Morgan Chase & Co. JPM, -0.15% and Britain’s HSBC HSBA, +0.62% HSBC, -0.12% are deemed the most important to the global financial system.
Among U.S. banks, J.P. Morgan Chase is followed by Citigroup Inc. C, -0.30%, Bank of America Corp. BAC, -0.66%, Goldman Sachs Group Inc. GS, -0.36%, Morgan Stanley MS, -0.34%, Bank of New York Mellon Corp. BK, -0.43%, State Street Corp. STT, -0.43% and Wells Fargo & Co. WFC, -0.45%.
Landing on the list means the banks are required to hold more capital to absorb potential losses and protect taxpayers from expensive government bailouts—as seen during the financial crisis—and to prevent shock waves from shaking the entire banking sector.
The FSB places each bank into one of five capital-buffer buckets depending on its estimated systemic-risk profile. This determines the extra funds the institution must hold on top of the 7% capital buffer set by the Basel III framework. J.P. Morgan, for example, needs to beef up its capital ratio by another 2.5%, while Citigroup, which is in a lower bucket, is required to only hold an extra 2%. The top group, which mandates holding an extra 3.5%, is empty this year.
The FSB was set up in 2009 by the Group of 20 industrialized and developing economies as a response to the financial crisis and is now tasked with—among other things—identifying the banks that can’t crash without sending shivers through the global economy. It amends the too-big-to-fail list each year in November to reflect the changes in size, composition and risk profile.
Thirty banks made the 2015 cut, the same number as in 2014, but with three changes. U.K.-based Royal Bank of Scotland Group PLC UK:RBS US:RBS moved from the 1.5% bucket to 1%. Spanish lender BBVA SA BBVA, +0.42% is out. And finally, the China Construction Bank Corp. 939, +0.43% has been added to the list, taking the total number of Chinese institutions to four, compared with three last year.
Here’s the full 2015 FSB list of the global systemically important banks (G-SIBs) and their respective capital buffer requirements:
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