Dealing with domestic systemically important banks: framework issued by the Basel Committee

The Basel Committee on Banking Supervision issued today its Framework for dealing with domestic systemically important banks.

In November 2011, the Basel Committee issued final rules for global systemically important banks (G-SIBs). The G20 leaders endorsed these rules at their November 2011 meeting and asked the Basel Committee and the Financial Stability Board to work on extending the framework to domestic systemically important banks (D-SIBs).

While not all D-SIBs are significant from a global perspective, the failure of such a bank could have a much greater impact on its domestic financial system and economy than that of a non-systemic institution. Some of these banks may have cross-border externalities, even if the effects are not global in nature.

Against this backdrop, the Basel Committee developed a set of principles on the assessment methodology and the higher loss absorbency requirement for D-SIBs.¹ The framework takes a complementary perspective to the G-SIB framework by focusing on the impact that the distress or failure of banks will have on the domestic economy.

Given that the D-SIB framework complements the G-SIB framework, the Committee considers that it would be appropriate if banks identified as D-SIBs by their national authorities are required by those authorities to comply with the principles in line with the phase-in arrangements for the G-SIB framework, ie from January 2016.

Mr Stefan Ingves, Chairman of the Basel Committee on Banking Supervision and Governor of Sveriges Riksbank, noted that "the impact of the failure of a domestic systemically important bank could be significantly greater than that of a non-systemic institution. The principles developed by the Committee address this issue while retaining national flexibility to accommodate the specific characteristics of domestic financial systems. The framework will complement the measures on global systemically important banks announced last year, and contribute to a safer and sounder financial system."

1  The framework was published for public consultation on 29 June 2012.