Back to Blog feed

Updated List from the FSB

21 November 2016 by Gary Kirk

Earlier this morning the Financial Stability Board (FSB) announced its annual review on the global systemically important banks (G-SIBs) which includes the revised list for 2016. This has become an important list for investors as all banks that are determined G-SIBs are required to hold minimum amounts of total loss absorbency capital (TLAC) and within the G-SIB list there are categories with minimum set amounts of this additional buffer capital requirement. Generally all G-SIBs are required to annually submit an emergency resolution plan to their regulator, with Basel 3 guiding each institution to adhere to a minimum capital adequacy ratio which consists of a maximum 1.5% Additional Tier 1 capital (AT1), a maximum of 2% Tier2 capital, and a minimum 8.0-10.5% high quality Tier 1 capital (common equity capital).  The updated list today is effectively applied to the individual banks 14 months from now i.e. January 2018 (so that there is adequate time to meet the minimum requirement).

The FSB’s updated list is as follows:

There were no great surprises in the updated list, although for Barclays and HSBC there was the advantage of dropping down one bucket, thereby requiring them to hold 0.5% less G-SIB buffer capital. As Mark Carney reminded us on the day after the UK referendum, UK banks have never exhibited more robust balance sheets and the investors need not worry that they are required to hold less capital as a result of this movement down the FSBs list – both banks are above their minimum requirement with Barclays exhibiting a 11.6% CET1 ratio (fully loaded) for the period ending Q3-2016, while HSBC reported a CET1 ratio of 13.9% (fully loaded) for the same period. We can imagine that the management of Deutsche Bank would have been envious of the reduction of required capital enjoyed by their UK peers.

However, for us the most interesting element of the new FSB list are any new members to the G-SIB club and any institutions no longer considered systemically important. This time around, there are no new members, however we had thought that RBS might just slip from the list given the level of divestment that the group have undertaken in recent years. With the US DoJ settlement discussions looming, it would have been an opportune time for RBS to have waved goodbye the need for any TLAC, but alas this is not to be for now.

Disclaimer

FOR PROFESSIONAL INVESTORS ONLY. NO OTHER PERSONS SHOULD RELY ON THE INFORMATION CONTAINED HERE.

This material is for information purposes only. Any views expressed are those of the author, and do not necessarily reflect the views of TwentyFour. TwentyFour does not warrant the accuracy or completeness of any information contained herein, and therefore it should not be considered as an indication of trading intent, personal investment advice, or a basis on which to buy, hold or sell any investment vehicle/instrument. As such, TwentyFour accepts no liability for any use, or misuse, of the material in this commentary. This material may not be reproduced, in part or in whole without the express prior written permission of TwentyFour.

Please remember that all investment comes with risk and positive returns are not guaranteed and you may not get back what you invested. Investing in fixed income securities comes with credit risk, default risk, inflation risk and interest rate risk.