02 January 2018
Washington DC
Reporter: Jenna Lomax

Asian banks systemic risk on the rise

The systemic importance of Asian banks on the global stage has increased for second consecutive year, according to the Office of Financial Research (OFR).

The OFR indicated with its latest data report on global systemically important banks (G-SIBs) that the scores of Bank of China and China Construction Bank in particular, “rose enough to put them in a higher capital bucket because of their increased interconnectedness and complexity.”

According to the OFR, the systemic importance scores for three Japanese G-SIBs increased even more than the score of the Bank of China.

The OFR noted that these banks will not see their capital requirements change, because they did not move to different ‘buckets’.

National authorities, such as the US Federal Reserve, use these groupings to determine how much more capital each bank must hold.

The report utilised data updated Basel Committee on Banking Supervision (BCBS) last November, which showed that US banks’ systemic footprint still dominated the global totals.

The OFR used the BCBS’s data to update its G-SIBs scores interactive chart.

For North America, JPMorgan Chase had the strongest G-SIB scores from 2014 to 2016.

OFR reported that shifts in most G-SIBs’ systemic importance scores “did not see much change, though Citigroup’s score and capital requirement decreased from 2016 because the bank rated as less interconnected and complex”.

The three largest US bank holding companies by total assets and exposures are JPMorgan Chase, Bank of America and Wells Fargo, respectfully.

OFR stated: “For US non-G-SIB banks, the data continues to support the use of systemic importance metrics rather than asset size alone to set thresholds for heightened regulation.”

Elsewhere, Royal Bank of Canada was added; it is the first Canadian bank to be designated as a G-SIB, France’s Groupe BPCE was dropped from the list.

OFR said that its analysis “further highlights the value of considering multiple systemic indicators, not just size.”

The OFR explained that though JPMorgan Chase ranked first or second in most comparative data, its SRISK, a market-based systemic risk measure, “was negligible”.

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