One of Brian’s Favorite Quotes
I ask, sir, what is the militia? It is the whole people, except for a few public officials.George Mason, 3 Elliot, Debates at 425-426.The right of the people to keep and bear.arms shall not be infringed. A well regulated militia, composed of the people, trained to arms is the best and most natural defense of a free country.”
— James Madison
1 Annals of Congress 434 .
Risk-Based Capital Guidelines: Implementation of Capital Requirements for Global Systemically Important Bank Holding Companies
The proposal would establish a methodology for identifying a U.S. bank holding company as a GSIB based on the bank holding company’s systemic risk profile and establishing the appropriate size of the GSIB surcharge.
A. Identification of a GSIB
The proposal would require each U.S. top-tier bank holding company with total consolidated assets of $50 billion or more that is not a subsidiary of a non-U.S. banking organization to determine annually whether it is a GSIB by using five categories that measure global systemic importance: Size, interconnectedness, substitutability, complexity, and cross-jurisdictional activity. These proposed categories were chosen to measure whether the failure of a bank holding company, or the inability of a bank holding company to conduct regular course-of-business transactions, would likely impair financial intermediation or financial market functioning so as to inflict material damage on the broader economy. These factors are also consistent with the factors that the Board considers in reviewing financial stability implications of proposed mergers and acquisitions by banking organizations.
The proposal identifies individual systemic indicators that measure the firm’s profile within each category, set forth in Table 1 below, and sets forth a weighting for those indicators to compute a bank holding company’s systemic indicator score. The advantages of a multiple indicator-based measurement approach is that it encompasses many dimensions of systemic importance and is transparent. These systemic indicators, and their relationship to financial stability, are described in section III of this preamble.
To determine whether it is a GSIB, a bank holding company would first identify values for each systemic indicator listed in Table 1 that it reported on its most recent Banking Organization Systemic Risk Report (FR Y-15).
The bank holding company would then divide each of these values by the corresponding aggregate global indicator amount published by the Board in the fourth quarter of that year. This aggregate global indicator amount corresponds to the amount released by the BCBS, converted from Euros to U.S. dollars using the conversion rate provided by the BCBS. The aggregate global indicator amount released by the BCBS is the sum of the systemic indicator amounts for each category listed in Table 1 above, as reported by a sample of the largest banking organizations in the world for each systemic indicator.
The resulting quotient for each indicator would be multiplied by the prescribed weighting indicated in Table 1 above, and then multiplied by 10,000 to reflect the result in basis points. For example, if a bank holding company’s cross-jurisdictional claims divided by the associated aggregate global amount for that indicator is 0.03 (that is, the firm’s cross-jurisdictional claims amount is equal to 3 percent of the aggregate global amount for cross-jurisdictional claims), then its cross-jurisdictional claims indicator score would be 30 basis points (0.03*0.1*10,000). A bank holding company would then sum the weighted values for the twelve systemic indicators to determine its aggregate systemic indicator score and whether it would be identified as a GSIB, provided that the value for the substitutability indicators would be capped at 100, as described in section III.C of this preamble.
Under this methodology, a bank holding company’s systemic importance depends on the amount of its activity in each systemic indicator relative to the global magnitude of the activity. The multi-indicator approach reflects the fact that there are multiple elements that contribute to systemic importance. The aggregate global indicator amounts released annually by the BCBS provide a simple and convenient means of comparing the global, consolidated activities of similarly situated global banking organizations.
In determining the threshold for identifying a GSIB, the Board analyzed various potential metrics for evaluating the systemic importance of large banking organizations, including those in the BCBS framework.
According to the Board’s analysis, across many potential metrics, there is a clear separation in systemic risk profiles between the eight U.S. top-tier bank holding companies that would be identified as GSIBs under the proposed methodology and other bank holding companies. For example, using the estimated global systemic scores for the U.S. bank holding companies with over $50 billion of total consolidated as derived from data reported on the FR Y-15 filed in March 2014, there is a significant gap in scores among the largest bank holding companies, with all entities other than the eight bank holding companies that would currently be identified as GSIBs receiving aggregate systemic indicator scores of less than 50 points. Further, the bank holding company with the highest aggregate systemic indicator score that is not a GSIB received a score of approximately one third of that of the GSIB with the lowest aggregate systemic indicator score. The 130 basis point threshold is intended to capture the bank holding companies that are in this separate, higher systemic importance group. Bank holding companies with aggregate systemic indicator scores under the 130 basis point threshold would not be subject to a GSIB surcharge.
The proposal would require a bank holding company with total consolidated assets of $50 billion or more to begin calculating its aggregate systemic indicator score by December 31 of the year in which it crosses the $50 billion threshold. While the Board’s other regulations implementing section 165 of the Dodd-Frank Act generally measure application of the enhanced prudential standards based on a four-quarter average of total consolidated assets, the proposal would adopt a June 30 measurement date of total consolidated assets to be consistent with the FR Y-15 reporting schedule.
Question 1. What are commenters’ views on the scope of application of the proposal? Is the $50 billion total consolidated asset threshold appropriate for requiring bank holding companies to calculate their systemic indicator scores, or should some higher asset threshold be considered? Is it appropriate to exclude bank holding companies that are subsidiaries of non-U.S. banking organizations from the proposal’s scope of application?
Question 2. What, if any, different or additional indicators should the Board consider for the identification of a bank holding company as a GSIB? In particular, should the Board take into account a bank holding company’s use of short-term wholesale funding instead of or in addition to substitutability in determining whether it should be designated as a GSIB? Why or why not?
Question 3. What, if any, different aggregate systemic indicator score threshold should the Board consider for the designation of a bank holding company as a GSIB?
Question 4. If the proposed framework were applied to nonbank financial companies designated by the Financial Stability Oversight Council for Board oversight, how (if at all) should the framework be modified to capture the systemic risk profile of those companies?
B. Using Systemic Indicators Reported on the FR Y-15
As noted above, the systemic indicators are aligned with those reported by a bank holding company on the FR Y-15. The FR Y-15, implemented on December 31, 2012, is an annual report that gathers data on components of systemic risk from large bank holding companies and provides firm-specific information to enable an analysis of the systemic risk profiles of such firms.
The FR Y-15 was developed to facilitate the implementation of the GSIB surcharge through regulation, and also is used to analyze the systemic risk implications of proposed mergers and acquisitions and to monitor, on an ongoing basis, the systemic risk profiles of bank holding companies subject to enhanced prudential standards under section 165 of the Dodd-Frank Act. As of December 31, 2013, all U.S. top-tier bank holding companies with total consolidated assets of $50 billion or more are required to file the FR Y-15 on an annual basis. In connection with this proposal, the Board intends to modify the FR Y-15 to gather information on bank holding companies’ use of short-term wholesale funding.
Question 5. Is the proposed use of June 30 as the measurement date for the $50 billion total consolidated asset threshold appropriate? Is there an alternative measurement date that should be used?
C. Computing the Applicable GSIB Surcharge
Under the proposal, a bank holding company with an aggregate systemic indicator score of 130 basis points or greater would be identified as a GSIB and as such, would be subject to the higher of the two surcharges calculated under method 1 and method 2, as described below.
1. Method 1 Surcharge
A GSIB’s method 1 surcharge would be the capital surcharge set forth in Table 2 below that corresponds to its aggregate systemic indicator score. As discussed further in section II.C.3 of this preamble, the proposed method 1 surcharge reflects one method of calibrating the size of a surcharge based on the probable systemic impact from the failure of a GSIB as compared to a bank holding company that is large, but not systemically important.
For instance, if a GSIB’s systemic indicator score were 250, the GSIB’s method 1 surcharge would be 1.5 percent.
As reflected in Table 2, the lowest method 1 surcharge would correlate to a method 1 score band ranging from 130 basis points to 229 basis points and would increase in increments of 0.5 percentage points for each additional 100 basis-point band, up to a method 1 surcharge of 2.5 percent. To account for the possibility that a GSIB’s aggregate systemic indicator score could increase in the future beyond the fourth band, the proposal would require a one percentage point increase in the method 1 surcharge for each 100 basis point band at and above 530 basis points. An indefinite number of bands would give the Board the ability to assess an appropriate method 1 surcharge should a GSIB become significantly more systemically important, and would create disincentives for continued increases in global systemic scores.
Calibrating the surcharge using bands, as set forth in the proposal, or using a continuous function that increases linearly based on the weighted average of a bank holding company’s systemic indicator score was considered during the development of the proposal. While the continuous function is more sensitive to changes in a bank holding company’s systemic risk profile, it could be less transparent to the public and may be misleading in its precision as a measure of systemic risk. Accordingly, the proposal uses bands because it is a simple, transparent method that enables a GSIB and the public to better anticipate the size of the method 1 surcharge for future periods. The bands are intended to be sufficiently large so that modest changes in a firm’s systemic indicators would not cause a firm to move between surcharge amounts. However, to the extent that a marginal change in a bank holding company’s systemic risk profile caused the bank holding company to have a higher method 1 score, the proposal would delay the effective date of the higher method 1 score for a full year after it was calculated.
2. Method 2 Surcharge
As a second step to determining its GSIB surcharge, a GSIB would be required to compute its surcharge under method 2. Under method 2, the GSIB would calculate a score for the size, interconnectedness, complexity, and cross-jurisdictional activity systemic indicators in the same manner as undertaken to compute its aggregate systemic indicator score. However, rather than using the substitutability systemic indicator used under method 1, the GSIB would instead add to its score a quantitative measure of its use of short-term wholesale funding (short-term wholesale funding score).
The proposal would include a firm’s short-term wholesale funding score as a factor in the GSIB surcharge in order to address the systemic risks associated with short-term wholesale funding use. As described in section I.A. of this preamble, use of short-term wholesale funding generally increases a firm’s probability of default by making the firm vulnerable to short-term creditor runs, and increases the likely social costs of the firm’s distress, including by heightening the risk that the firm’s significant stress or failure will give rise to fire sale externalities. Incorporating a short-term wholesale funding score into the GSIB surcharge framework would require a GSIB to hold more capital based on whether it relies more heavily on short-term wholesale funding. The increased capital charge would help increase the resiliency of the firm against runs on its short-term wholesale funding and help internalize the cost of using short-term wholesale funding. A GSIB may opt to modify its funding profile to reduce its use of short-term wholesale funding, or continue to use short-term wholesale funding to the same degree but hold additional capital.
The proposed method 2 would not rely on a measure of substitutability, even though the proposal would use substitutability to determine whether a bank holding company would be identified as a GSIB. A bank holding company’s substitutability is relevant in determining whether a bank holding company is a GSIB, as the failure of a bank holding company that performs a critical function where other firms lack the expertise or capacity to do so can pose significant risks to U.S. financial stability. However, the capital surcharge imposed on a GSIB should be designed to address the GSIB’s susceptibility to failure, and increasing a GSIB’s surcharge based on short-term wholesale funding use rather than substitutability is a more effective means of requiring a GSIB to internalize the externalities it imposes on the broader financial system and reduce its probability of failure. A GSIB’s short-term wholesale funding score would be based on the GSIB’s average use of short-term wholesale funding sources over a calendar year. The proposed components of short-term wholesale funding would be weighted to account for the varying degrees of risk associated with different sources of short-term wholesale funding, and would then be divided by the GSIB’s average total risk-weighted assets over the same calendar year. A GSIB would then apply a fixed conversion factor to the measure of short-term wholesale funding to normalize the value of short-term wholesale funding relative to the other systemic indicators. This amount would constitute the GSIB’s short-term wholesale funding score. The methodology to calculate the short-term wholesale funding score, including its justification, is described in detail in section III.F of this preamble.
Once a GSIB calculates its short-term wholesale funding score, the GSIB would add its short-term wholesale funding score to the systemic indicator scores for the size, interconnectedness, complexity, and cross-jurisdictional activity indicators and multiply this figure by two to arrive at its method 2 score. To determine its method 2 surcharge, a GSIB would identify the method 2 surcharge that corresponds to its method 2 score, as identified in Table 3 below.
For instance, if a GSIB’s short-term wholesale funding score were 200 and the sum of its systemic indicator scores for the size, interconnectedness, complexity, and cross-jurisdictional activity indicators were 530, the GSIB’s method 2 score would equal 730, and its method 2 surcharge would be 4.0 percent.
Like the bands of the method 1 surcharge, the method 2 surcharge would use band ranges of 100 basis points, with the lowest band ranging from 130 basis points to 229 basis points. The method 2 surcharge would increase in increments of 0.5 percentage points per band, including bands at and above 1130 basis points. The modified band structure is appropriate for the method 2 surcharge because the proposed method’s doubling of a GSIB’s method 2 score could otherwise impose a surcharge that is larger than necessary to appropriately address the risks posed by a GSIB’s systemic nature. As with the method 1 surcharge, the method 2 surcharge would include an indefinite number of bands in order to give the Board the ability to assess an appropriate surcharge should a GSIB become significantly more systemically important and would create disincentives for continued increases in systemic indicator and short-term wholesale funding scores.
3. Calibration of GSIB Surcharge and Estimated Impact
Under the proposal, a GSIB would be subject to the greater surcharge resulting from the two methods described above. Based upon the proposed formulation of method 2, in most instances, a GSIB would be subject to the surcharge resulting from method 2.
The proposed calibration of the GSIB surcharges is based on the Board’s analysis of the additional capital necessary to equalize the probable systemic impact from the failure of a GSIB as compared to the probable systemic impact from the failure of a large, but not systemically important, bank holding company. Increased capital at a GSIB increases the firm’s resiliency to failure, thereby reducing the probability of it having a systemic effect. The proposed approach also builds on analysis of the return on risk-weighted assets that was developed to inform the calibration of the minimums and capital conservation buffers of the Board’s regulatory capital rule.
In addition, the Board considered the long-term economic impact of stronger capital and liquidity requirements at banking organizations. In 2010, the BCBS published a study (2010 BCBS study), which estimated, using historical data, that the economic benefits of more stringent capital and liquidity requirements, on net, outweighed the cost of such requirements and that benefits would continue to accrue at even higher levels of risk-based capital than are a part of the Board’s regulatory capital rule.
The Board also considered that other jurisdictions have established capital requirements for global systemically important banking organizations that exceed those required by the BCBS framework; for instance, by imposing a larger surcharge upon global systemically important banking organizations than would be imposed under the BCBS framework or by requiring implementation of a global systemically important banking organization surcharge on a more expedited timeline. For example, Switzerland, Sweden, and Norway each require global systemically important banking organizations to adhere to capital requirements larger than those of the BCBS framework.
Under the proposal, the method 1 surcharge would serve as a floor for the GSIB surcharge. Like the method 2 surcharge, the method 1 surcharge is based on the expected impact approach, but differs in three important ways. First, based upon current data, method 1 generally results in lower GSIB surcharges than method 2. Second, as compared to method 2, method 1 increases the GSIB surcharge at a higher rate to the extent a GSIB’s systemic risk profile were to exceed the highest aggregate systemic indicator scores of the current GSIB population. As described above, the proposed method 1 surcharge would increase in 0.5 percentage point increments up to 2.5 percent, and then in 1.0 percentage point increments after a GSIB’s systemic risk profile increases beyond the maximum current level (i.e., beyond 250 points). Accordingly, in the future, a GSIB that increases in systemic importance could be bound by proposed method 1, rather than method 2. Third, method 1 would use a measure of substitutability. While the use of short-term wholesale funding is likely a more effective indicator for evaluating a GSIB’s susceptibility to failure, a GSIB with a high substitutability score but low systemic indicator scores in all other categories may be subject to a surcharge under method 1 but not under method 2. In this case, imposing the method 1 surcharge would be appropriate, in order to correct for competitive and systemic distortions created by the perception that the GSIB may be too big to fail. Notably, this approach would also facilitate comparability among jurisdictions implementing the BCBS framework.
Using data as of year-end 2013, the Board estimates that the GSIB surcharges that would apply to the eight U.S. top-tier bank holding companies that would be identified as GSIBs would range from 1.0 to 4.5 percent.
Based upon these estimates, nearly all of the eight firms would already meet their GSIB surcharges on a fully phased-in basis, and all firms are on their way to meeting their surcharges over the proposed three-year phase-in period.
Question 6. The Board seeks comment on all aspects of the calibration of the GSIB surcharge. What are commenters’ views regarding the proposed calibration? What are commenters’ views regarding the benefits and challenges associated with the proposed two-method approach for determining the amount of the GSIB surcharge?
Question 7. What are commenters’ views on the appropriateness of replacing the substitutability indicator with the short-term wholesale funding score under method 2?
Question 8. What are commenters’ views on how the proposed GSIB surcharge would impact the competitive position of GSIBs relative to foreign peer institutions?
Question 9. What potential costs would be imposed on bank holding companies if the proposed GSIB surcharge were implemented? What are the potential impacts of the proposed framework on economic growth, credit availability, and credit costs in the United States, over the short-term and long-term? How could potential costs, burdens, and other adverse effects be minimized while achieving the financial stability benefits of the proposed GSIB surcharge?
4. Alternative Method of Capturing Use of Short-Term Wholesale Funding
Alternative methods could be used to reflect use of short-term wholesale funding within the GSIB surcharge. For example, the applicable surcharge might be calculated by using short-term wholesale funding as a scaling factor for the method 1 surcharge. For example, one approach might be:
2 is the result of scaling the method 1 surcharge, and where F= 1 + (STWF/RWA) ×n, where STWF is a GSIB’s short-term wholesale funding amount and RWA is the total risk-weighted assets of a GSIB. The parameter n would be chosen to capture concerns about a GSIB’s default probability and its interaction with the externalities identified in the GSIB
As noted above, the Board believes that in most instances, GSIB
2 will be greater than GSIB
1. Multiplying the method 1 surcharge by a scaling factor F could result in stronger incentives to reduce use of short-term wholesale funding, particularly among the most systemic firms. For example, using the existing measure of reliance (short-term wholesale funding/total average risk-weighted assets) and a scaling factor of 4 (n=4) produces a comparable set of surcharges relative to the method 2 surcharge described above. Similarly, choosing a smaller factor for n would result in a smaller increase in GSIB surcharges.
Scaling the method 1 surcharge using a factor that incorporates short-term wholesale funding would reflect the view that the externalities associated with short-term wholesale funding depend largely on those firms identified as GSIBs under the proposed methodology. As a result, this alternative approach would maintain consistency with the BCBS framework’s surcharge methodology. In addition, alternative scaling factors might be considered by altering the definition of short-term wholesale funding or using alternative dominators other than total average risk-weighted assets.
Question 10. What are commenters’ views regarding scaling the method 1 surcharge to capture use of short-term wholesale funding? How should the scaling factor be chosen?
D. Augmentation of the Capital Conservation Buffer
Under the proposal, the GSIB surcharge would augment the regulatory capital rule’s capital conversation buffer for purposes of determining the banking organization’s maximum payout ratio.
Under the regulatory capital rule, a banking organization must maintain capital sufficient to meet a minimum common equity tier 1 capital requirement of 4.5 percent, a minimum tier 1 capital requirement of 6 percent, and a minimum total capital requirement of 8.0 percent. In addition to those minimums, in order to avoid limits on capital distributions and certain discretionary bonus payments, a banking organization must hold sufficient capital to satisfy the minimum capital requirements, plus a capital conservation buffer composed of common equity tier 1 capital equal to more than 2.5 percent of risk-weighted assets. The capital conservation buffer is divided into quartiles, each associated with increasingly stringent limitations on capital distributions and certain discretionary bonus payments as the capital conservation buffer approaches zero.
Under the proposal, the GSIB surcharge would expand each quartile of a GSIB’s capital conservation buffer by the equivalent of one fourth of the GSIB surcharge.
The minimum common equity tier 1 capital requirement for banking organizations is 4.5 percent, which, when added to the capital conservation buffer of 2.5 percent, results in a banking organization needing to maintain a common equity tier 1 capital ratio of more than 7 percent to avoid limitations on distributions and certain discretionary bonus payments. Under the proposal, this 7 percent level would be further increased by the applicable GSIB surcharge.
The mechanics of the capital conservation buffer calculations, after incorporating the GSIB surcharge, are illustrated in the following example.
A bank holding company is identified as a GSIB under the proposed framework as a result of having an aggregate systemic indicator score of 350 basis points. Under method 1, the GSIB’s score correlates to a 2.0 percent method 1 surcharge. Under method 2, the GSIB’s method 2 score equals 625, so that the GSIB’s score would correlate to a surcharge of 3.0 percent. As the method 2 surcharge is larger than the method 1 surcharge, the GSIB would be subject to a GSIB surcharge of 3.0 percent. As a result, in order to have no payout ratio limitation under the proposal, the GSIB must maintain a common equity tier 1 capital ratio in excess of 10 percent (determined as the sum of the minimum common equity tier 1 capital ratio of 4.5 percent plus the capital conservation buffer of 2.5 percent as expanded by the 3 percent GSIB surcharge). In determining the effect on capital distributions and bonus payments, each of the four quartiles of the GSIB’s capital conservation buffer would be expanded by one fourth of its GSIB surcharge, or by 0.75 percent, as set forth below in Table 5.
The Board will be analyzing in the coming year whether the Board’s capital plan and stress test rules should also include a form of GSIB surcharge.
If the Board were to decide to propose a GSIB surcharge for the capital plan and stress test rules at a later date, the Board would do so through a separate notice of proposed rulemaking.
E. Implementation and Timing
1. Ongoing applicability
Subject to the initial applicability provisions described in section E.2 of this preamble, if a top-tier U.S. bank holding company has total consolidated assets of $50 billion or more for the first time as of June 30 of a given year (as reported on its FR Y-9C), under the proposal, that bank holding company must begin calculating its aggregate systemic indicator score by December 31 of that calendar year. If the bank holding company’s aggregate systemic indicator score exceeds 130 basis points, the bank holding company would be identified as a GSIB, and would be required to calculate its GSIB surcharge (using both method 1 and method 2) by December 31 of that year. Under the proposal, the GSIB surcharge would become an extension of the GSIB’s capital conservation buffer a full year later, on January 1 of the second calendar year, based on the surcharge calculated in the year the bank holding company was identified as a GSIB.
The proposed schedule is aligned with the filing schedule for the FR Y-15 report, which must be filed by any top-tier U.S. bank holding company with total consolidated assets of $50 billion or more. Specifically, 65 calendar days after the December 31 as-of date of the FR Y-15, a bank holding company must file the FR Y-15 on which it reports the indicator values that comprise its aggregate systemic indicator score as of the end of the prior calendar year. Over the course of the year, the BCBS aggregates the indicator amounts from a specific sample of the largest global banking organizations (the 75 largest global banking organizations by total exposures, along with any banking organization that was designated as a global systemically important banking organization by the FSB in the previous year), and publishes its calculation of those aggregate amounts that November. Following publication by the BCBS, the Board will publish the aggregate global indicator amount, which generally will be equal to the amount published by the BCBS and converted into dollars. As noted above, a bank holding company with total consolidated assets of $50 billion or more would be required to calculate its aggregate systemic indicator score by December 31, relying on the previous year-end data. If a bank holding company were identified as a GSIB, it would also be required to calculate its GSIB surcharge by the end of the year in which it qualified as a GSIB. To perform this calculation, the GSIB would be required to retain data necessary to calculate its short-term wholesale fund score during the previous year.
For example, a bank holding company would file on March 1, 2020 a FR Y-15 report, on which it reported its systemic indicator values as of December 31, 2019. The BCBS would publish its estimates of the aggregate global indicator amounts as of December 31, 2019 in November 2020, and the Board would publish the aggregate global indicator amounts shortly thereafter. The bank holding company would calculate its aggregate systemic indicator score by December 31, 2020. If the bank holding company were identified as a GSIB by December 31, 2020, that GSIB would be required to calculate its global systemic score using its systemic indicators and short-term wholesale funding data as of December 31, 2019. In that instance, the GSIB would be required to use its GSIB surcharge to calculate its maximum payout ratio under the capital conservation buffer framework beginning on January 1, 2022.
After the initial GSIB surcharge is in effect, if a GSIB’s systemic risk profile changes from one year to the next such that it becomes subject to a higher GSIB surcharge, the higher GSIB surcharge would not take effect for a full year (that is, two years from the systemic indicator measurement date). If a GSIB’s systemic risk profile changes such that the GSIB would be subject to a lower GSIB surcharge, the GSIB would be subject to the lower surcharge beginning in the next quarter.
Question 11. What are commenters’ views with regard to the proposal’s dates for the measurement of systemic indicator scores for purposes of the GSIB surcharge? In light of these dates, what challenges would bank holding companies encounter in retaining capital sufficient to adhere to the GSIB surcharge?
Question 12. What challenges would a bank holding company encounter in retaining short-term wholesale funding data sufficient to calculate the GSIB surcharge?
2. Initial Applicability
For the eight bank holding companies that would currently be identified as GSIBs under the proposed methodology, the GSIB surcharge would be phased in from January 1, 2016 to December 31, 2018. This phase-in period was chosen to align with the phase-in of the capital conservation buffer and countercyclical capital buffer, as well as the phase-in period of the BCBS framework. Table 6 shows the regulatory capital levels that a GSIB must satisfy to avoid limitations on capital distributions and discretionary bonus payments during the applicable transition period, from January 1, 2016 to January 1, 2019.
TheGSIB surcharge in effect on January 1, 2016, would rely on the systemic indicator scores reported as of December 31, 2014. However, given that bank holding companies have not been required to calculate or retain data related to their short-term wholesale funding scores (which is generally based on average data over the preceding calendar year), the proposal would measure a GSIB’s short-term wholesale funding amount for: (i) The GSIB surcharge calculated by December 31, 2015, based on data from the third quarter of 2015, and (ii) the GSIB surcharge calculated by December 31, 2016, based on data from the third and fourth quarters of 2015. For the GSIB surcharge calculated by December 31, 2017 (assuming a GSIB’s surcharge does not otherwise increase), the surcharge would be based on yearly data from 2016. In order to comply with the proposal, a bank holding company that is currently identified as a GSIB would be required to retain information to calculate its short-term wholesale funding amount beginning on July 1, 2015.
While the proposal would generally rely on a full calendar year of short-term wholesale funding data to compute a GSIB’s short-term wholesale funding amount for purposes of calculating the GSIB’s method 2 surcharge going forward, the proposed implementation schedule would rely on quarterly averages for the surcharges calculated by December 31, 2015 and 2016, which should be sufficient to smooth the volatility for short-term wholesale funding while facilitating implementation of the method 2 surcharge on the same timeline as that used for the implementation of the method 1 surcharge.
Table 7 sets forth the reporting and compliance dates for the proposed GSIB surcharge described above.
Table 7—GSIB Surcharge Reporting and Compliance Dates During Phase-In Period Back to Top
FR Y-15 filing deadline reflecting bank holding company systemic indicator values as of December 31, 2014.
July 1, 2015
GSIBs begin collecting short-term wholesale funding data.
BCBS publishes aggregate global indicator amounts using 2014 data, and the Board publishes the aggregate global indicator amount for use by U.S. bank holding companies shortly thereafter.
January 1, 2016
Bank holding companies identified as GSIBs are subject to GSIB surcharge (as phased in) calculated using year-end 2014 systemic indicator scores and Q3 2015 short-term wholesale funding data.
FR Y-15 filing deadline reflecting bank holding company (1) systemic indicator values and scores as of December 31, 2015 and (2) short-term wholesale funding score using Q3 and Q4 2015 data (to be separately proposed).
BCBS publishes aggregate systemic indicator amounts using 2015 data, and the Board publishes the aggregate global indicator amount for use by U.S. bank holding companies shortly thereafter.
December 31, 2016
Bank holding companies identified as GSIBs must calculate their GSIB surcharge using year-end 2015 systemic indicator scores and short-term wholesale funding score using Q3 and Q4 2015 short-term wholesale funding data.
January 1, 2017
If the GSIB surcharge calculated by December 31, 2016, stays the same or decreases, the GSIB is subject to that GSIB surcharge (if the GSIB surcharge increases, increased GSIB surcharge comes into effect beginning on January 1, 2018).
FR Y-15 filing deadline reflecting bank holding company (1) systemic indicator values and scores as of December 31, 2016; and (2) short-term wholesale funding score as of December 31, 2016 using 2016 short-term wholesale funding data (to be separately proposed).
BCBS publishes aggregate systemic indicator amounts using 2016 data, and the Board publishes the aggregate global indicator amount for use by U.S. bank holding companies shortly thereafter.
December 31, 2017
Bank holding companies identified as GSIBs must calculate their GSIB surcharge using year-end 2016 systemic indicator scores and 2016 short-term wholesale funding score.
January 1, 2017
If the GSIB surcharge calculated by December 31, 2017, stays the same or decreases, the GSIB is subject to that GSIB surcharge (if the GSIB surcharge increases, increased GSIB surcharge comes into effect beginning on January 1, 2019).
Question 13. What are commenters’ views regarding the timing of the implementation of the GSIB surcharge? What are the benefits and drawbacks of aligning the effective dates of the method 1 and method 2 surcharges? Should the Board consider staggering the effectiveness of the method 1 and method 2 surcharges such that GSIBs would be able to use a year’s worth of short-term wholesale funding data to compute their short-term wholesale funding scores? Why or why not?
Question 14. What are commenters’ views with regard to the proposal’s dates for the measurement of systemic indicator scores for purposes of the GSIB surcharge that is effective January 1, 2016? Would using data as of year-end 2014 present any difficulties in terms of capital retention for bank holding companies that are currently identified as GSIBs?
F. Periodic Review and Refinement of the Proposal
The Board recognizes that the proposal, if adopted, may require further refinement over time. The Board would monitor the proposed GSIB surcharge methodology and consider whether any revisions are necessary to improve the effectiveness of the GSIB surcharge in advancing the Board’s goals. This could include consideration of any revisions made by the BCBS to the BCBS framework, as well as revisions to the minimum threshold to qualify as a GSIB and revisions to the method 1 and method 2 surcharge calculations that may be necessary over time.
To the extent that revisions are deemed necessary, any proposed changes would be subject to notice and comment.
Question 15. How well would the proposal’s GSIB surcharge incentivize bank holding companies to minimize their systemic risk profiles? How could the framework be changed to strengthen these incentives?
Question 16. How well does the proposal mitigate any implicit subsidies that GSIBs enjoy due to market perceptions that they are too big to fail? How well does the proposed framework force GSIBs to internalize the externalities that their failure or material financial distress would pose to the broader financial system?
Question 17. How well do the proposed indicators of global systemic importance and other aspects of the scoring methodology capture the relevant dimensions of global systemic importance and the negative externalities that global systemic importance can generate? What modifications or simplifications, if any, would be appropriate to assess global systemic importance?
Question 18. To what extent could bank holding companies and market participants easily determine a firm’s GSIB surcharge? How could the Board make the proposal more transparent in this respect?
Question 19. What are the advantages and disadvantages of a framework where a firm is identified as a GSIB not by firm-specific measures (e.g., a firm’s size, interconnectedness, and other characteristics), but rather by how a firm’s specific measures compare to the aggregate measures of a set of global large banking organizations? What are the implications for bank holding companies of using internationally compiled data to determine their systemic scores?
Question 20. What are the implications of periodically recalibrating the threshold scores and the size of the bands under methods 1 and 2? What are the implications of revising the framework over time? What factors should the Board consider in making such modifications and recalibrations?
Question 21. How well does the proposal reflect the changing elements of the global economy, such as growth in global domestic product, advances in financial intermediation, and inflation, and how might the proposal be adjusted to better reflect such elements?