The Basel, Switzerland-based international banking regulator the Financial Stability Board has published a list of 29 too big to fail, or "systemically important financial institutions" including five that are registered as banks in New Zealand, others with operations here and another that has bonds on issue here. However, none of the Australian parents of New Zealand's big four banks made the list.
The list, released over the weekend, includes Germany's Deutsche Bank, Citigroup and JPMorgan Chase of the United States, Japan's Mitsubishi UFJ, and Britain's HSBC, all of which are registered as banks in New Zealand with the Reserve Bank.
The list also includes other banks with New Zealand operations in Goldman Sachs of the US and Switzerland's UBS, plus France's Credit Agricole which has bonds listed on the NZX's debt market. However, none of the parents of New Zealand's big trading banks - ANZ Banking Group (ANZ and National Bank), Commonwealth Bank of Australia (ASB), National Australia Bank (BNZ), or Westpac Banking Corporation (Westpac NZ), made the list.
Another on the list, Britain's Lloyds Banking Group, has significant business in New Zealand including loans to property developers and private equity firms. The list also includes the French-Belgian-Luxembourg bank Dexia, currently being broken up after Belgium's government stepped in to buy its Belgian unit over bankruptcy fears. It's Dexia's second bailout in three years.
Here's the full list of 29:
Bank of America
Bank of China
Bank of New York Mellon
Banque Populaire CdE
Goldman Sachs Group
JP Morgan Chase
Lloyds Banking Group
Mitsubishi UFJ FG
Royal Bank of Scotland
Sumitomo Mitsui FG
The systemically important financial institutions, or SIFIs, are defined as financial institutions whose distress or disorderly failure, because of their size, complexity and systemic interconnectedness, would cause significant disruption to the world's wider financial system and economic activity.
The naming of the SIFIs comes after leaders from the Group of 20 (G20) asked the Financial Stability Board to develop a policy framework to address the systemic and moral hazard risks associated with such entities in the wake of the global financial crisis in 2008-09 when the failure of major financial institutions led to a combination of financial market chaos (Lehman Brothers) and taxpayer funded bailouts in several cases including Citibank, American International Group, Royal Bank of Scotland and Lloyds.
The SIFIs will be required to hold between 1% and 2.5% more capital than other major banks.
"Requirements for banks determined to be globally systemically important to have additional loss absorption capacity tailored to the impact of their default, rising from 1% to 2.5% of risk-weighted assets (with an empty bucket of 3.5% to discourage further systemicness), to be met with common equity," the Financial Stability Board said.
However, there is no rush for those banks identified as SIFIs to implement the demands made on them. The requirements won't apply until November 2014 and will be phased in from 2016 with full implementation by January 2019. The list of SIFIs will be updated annually and published by the Financial Stability Board every November.
The Financial Stability Board has a secretariat in Basel and hosted by the Bank for International Settlements along with the Basel Committee on Banking Supervision.