[메모] capital surchage on TBTF banks

※ 발췌 (excerpts):

1. FRB press release, Jul 2015

The Federal Reserve Board on Monday approved a final rule requiring the largest, most systemically important U.S. bank holding companies to further strengthen their capital positions. Under the rule, a firm that is identified as a global systemically important bank holding companies, or GSIB, will have to hold additional capital to increase its resiliency in light of the greater threat it poses to the financial stability of the U.S.

The final rule estabishes the criteria for identifying a GSIB and the methods that those firms will use to calculate a risk-based capital surcharge, which is calibrated to each firm's overall systemic risk. Eight U.S. firms are currently expected to be identified as GSIBs under the final rule: ( ... ).

"A key purpose of the capital surcharge is to require the firms themselves to bear the costs that their failure would impose on others," Chair Janet L. Yellen said. "In practice, this final rule will confront these firms with a choice: they must either hold substantially more capital, reducing the likelihood that they will fail, or else they must shrink their systemic footprint, reducing the harm that their failure would do to our financial system. Either outcomes would enhance financial stability."

LIke the proposal issued in December 2014, the final rule requires GSIBs to calculate their surcharges under two methods and use the higher of the two surcharges. The first method is based on the framework agreed to by the Basel Committee on Bank Supervision and considers a GSIB's size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity.

The second method uses similar inputs, but is calibrated to result in significantly higher surcharges and replaces substitutability with a measure of the firm's reliance on short-term wholesale funding. As seen during the crisis, reliance on this type of funding left firms vulnerable to runs and fire sales, which may impose additional costs on the broader financial system and economy.

Under the final rule and using the most recent available data, estimated surcharges for the eight GSIBs range from 1.0 to 4.5 percent of each firm's total risk-weigted assets. Because the final rule relies on individual GSIB data that will change over time, the currently estimated surcharges may not reflect the surcharges that would apply to a GSIB when the rule becomes effective.

"A set of graduated capital surcharges for the nation's most systemically important financial institutions will be an especially important part of the strengthened regulatory framework we have constructed since the financial crisis," Governor Daniel K. Tarullo said.  ( ... )

The surcharge will be phased in beginning on January 1, 2016, becoming fully effective on January 1, 2019.


2. Understanding SIFIs: What Makes an Institution Systemically Important? ( Emily Line | ThirdWay.org, Nov 2015)

( ... ) For a long time, federal financial regulation focused on protecting the consumer. ( ... ) Post-financial crisis, the focus of financial regulation has shifted to protecting the financial sector from itself. Systemic risk mitigation is meant to ensure that if one institution drowns in a liquidity crisis, it does not pull other interconnected financial institutions under the water.

Thus, the term "SIFI" was invented: Systemically Important Financial Institutions. These institutions have been deemed so important to the functioning of the economy that special rules and buffers were put in place to (1) reduce the probability of failure and (2) ensure that if they do go down, they go down alone.

( ... ... )

Who Are the SIFIs?

SIFIs are a creation of Dodd-Frank, and any ^bank^ with assets above $50 billion is deemed systemically important. These 33 banks must adhere to stricter requirements on capital and liquidity than other banks. They must also go through yearly stress tests and have a plan for orderly liquidation. Pretty simple so far.

Because the biggest SIFIs is about 40 times larger than the smallest SIFI, international regulators have created a special class of SIFIs called ^Global Systemically Important Banks^, or ^G-SIBs^. Compared to regular SIFIs, these banks must maintain even higher risk mitigation requirements.

Whereas the SIFI designation is based completely on the objective measure of asset size and is determined by the U.S., the G-SIB determination takes a more holistic approach and is made by an international body. This body, the Basel Committee on Banking Supervision, is an international organization for central banks and financial regulators, and its G-SIB designation supersedes U.S. SIFI designation.

( ... ... )

Issue #!: How Tough Should the Rules Be?

( ... ... )

All banks over $1 billion in size, SIFI or not, have to follow new enhanced capital standards under Dodd-Frank. Enhanced capital standards set a minimum ratio of ^equity to assets^. Equity provides a cushion that grows and shrinks as asset values fluctuate.  Regulators have historically used the ratio of total equity to total assets to determine a bank's amount of leverage.  After the crisis, a new ratio was created using risk-weigted assets ( ... ... )

For the eight global systemically important banks there is a third standard called the ^G-SIB surcharge^. This is a requirement for the eight globally important banks to hold even more capital than the other SIFIs. The idea behind the G-SIB surcharge is that "too big to fail" banks must either build up more capital (to reduce the likelihood of failure) or shed assets (to get smaller). When the Fed finalized the G-SIB surcharge rule earlier this year, it decided to make the U.S. requirements stronger than the global standard. The Fed also recently finalized another rule just for the G-SIBs that will require them to hold a certain amount of debt to serve as the second line of defense after the equity cushion. This rule, called Total Loss Absorbing Capacity(TLAC), is also a part of the global Basel Committee protocol.

( ... ... )

Non-SIFIs can avoid many, but not all, of these burdens. Dodd-Frank imposes new, graduated requirements on all banks bigger than $1 billion, and the rules becomes more stringent as bank size increases. ( ... ... )


3. Federal Reserve Approves Capital Restraints for Big Banks (Peter Eavis | NYT, Jul 2015)