HOT TOPICS:   Election 2014  |  LVRs   | Housing affordability                                                RESOURCES:    Economic calendar   |  Term deposit calculator

The comment stream

Reader poll

What's the most likely election outcome?

Choices

Join the Interest community to be a registered commenter so you can:
- Edit your comments
- Avoid the CAPTCHA
- Vote on comments
Register Here

Already registered? log back in here ..

Forgotten your password? No problem! Click here

Global banking body's list of too big to fail banks includes 5 of NZ's 21 registered banks, but none of the Aussie parents of our big four

Posted in News

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
Barclays
BNP Paribas
Citigroup
Commerzbank
Credit Suisse
Deutsche Bank
Dexia
Goldman Sachs Group
Crédit Agricole
HSBC
ING Bank
JP Morgan Chase
Lloyds Banking Group
Mitsubishi UFJ FG
Mizuho FG
Morgan Stanley
Nordea
Royal Bank of Scotland
Santander
Société Générale
State Street
Sumitomo Mitsui FG
UBS
Unicredit Group
Wells Fargo

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.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment in the box on the right or click on the "'Register" link at the bottom of the comments.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

6 Comments

So now they can do what they

So now they can do what they want, take on ever more risk and be sure that they would be bailed out again if they get into trouble ?

schrudddermuderli that's

schrudddermuderli that's crazy ! Good on you Iain - tick ! Yes, a lot of research needs to be done to uncover the crooks - media do a lousy job.

Not that being better

Not that being better 'capitalised' makes them safer. What do you think happens when you let banks determine their own personal safety standards, 

http://www.bloomberg.com/news/2011-11-09/financial-alchemy-undercuts-capital-regime-as-european-banks-redefine-risk.html

It appears that a 1%-2.5% increase in capital ratios could actually make Santander, HSBC, Lloyds, Commerzbank 1%-2.5% less adequitely capitalised. Congratulations Basel II, it really is an achievement to be this incompetent.

The following quote was price less however,

“It’s probably not the highest-quality way to move to the 9 percent ratio,” said Neil Smith a bank analyst at West LB in Dusseldorf, Germany. “Maybe a more convincing way would be to use the same models and reduce the risk of your assets.”