SIFIs: Too Big To Fail

November 17, 2011

This month, the Financial Stability Board (FSB) released a list of systemically important financial institutions (SIFIs), and the list includes:

 8 U.S. banks:

Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, J.P. Morgan, Morgan Stanley, State Street, and Wells Fargo.

17 European banks:

UK: Royal Bank of Scotland PLC, Lloyds Banking Group PLC , Barclays PLC, HSBC Holdings PLC;

France: Credit Agricole SA , BNP Paribas SA , Banque Populaire, Societe Generale SA

Germany: Deutsche Bank AG , Commerzbank AG

Italy: Unicredit Group SA

Switzerland: UBS AG , Credit Suisse AG

Belgium: Dexia SA

Netherlands: ING Groep NV

Spain: Banco Santander SA

Sweden: Nordea AB

3 Japanese institutions

Mitsubishi UFJ FG , Mizuho FG, Sumitomo Mitsui FG

1 bank from China

Bank of China

Those 29 banks will have to raise their core tier 1 capital ratios above Basel III mandates. The FSB foresees five "buckets", requiring extra capital of 1%, 1.5%, 2%, 2.5% and 3.5%. The more important the SIFI, the higher the surcharge it will have to pay. In addition, those institutions are being strongly encouraged to increase their internal supervisory measures, for governments to safeguard taxpayers’ benefits in case of bailing out institutions deemed too big to fail. Obviously, those requirements would be a big challenge for most of those 29 banks, as surcharges and strict regulation may restrict their ability to lend to the economy, as well as influence competition with their rivals.

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Lorena Li