Bank Capital Requirements: Basel Committee Issues Revised G-SIB Assessment Framework

Sullivan & Cromwell LLP - July 13, 2018

On July 5, the Basel Committee on Banking Supervision issued a revised framework that updates and replaces its 2013 framework used to identify global systemically important banks and impose higher capital requirements on those banks. The revised framework finalizes most of the changes to the 2013 framework that were proposed in March 2017, including (1) the introduction of a new indicator for secondary capital markets activity in the substitutability category, (2) the expansion of the regulatory scope of consolidation to include insurance subsidiaries, (3) amendments to the definition of cross-jurisdictional indicators, and (4) the addition of a requirement that banks disclose the indicators used in their “final” G-SIB calculations, which may require restatement in some cases. Notably, however, the Basel Committee did not remove the cap imposed on the maximum impact of the substitutability category on a bank’s overall score, as proposed in March 2017, or further address the potential introduction of a new indicator for short-term wholesale funding, which was presented as an “issue for discussion” in the March 2017 proposal. The Basel Committee notes in the preface to the revised framework that, in its next review of the framework, it “will pay particular attention to alternative methodologies for the substitutability category, so as to allow the cap to be removed at that time.”