Supervisors have continued pushing banks to improve the quality and quantum of their capital and have been pragmatic. The blanket capital distribution bans introduced during the pandemic as part of a package of measures to enable banks to continue supporting the economy were not popular with equity investors but they were credit supportive.

“This time around, regulators have indicated that they are likely to pursue a bank-by-bank approach while urging banks to be prudent in the current environment,” said Pauline Lambert, executive director in Scope’s financial institutions team. “But the situation now is more complex as central banks are tackling high inflation. We have not yet seen any roll-backs of announced increases in countercyclical capital buffer (CCyB) rates, for example.”

It has been a busy few months on the regulatory front in terms of capital developments. The Basel Committee on Banking Supervision supports and sees positive benefit in having positive cycle-neutral CCyB rates. The EBA found that banks already largely meet the new requirements under the final Basel III framework, while the Single Resolution Board (SRB) exercised its MREL-MDA powers on Banca Monte dei Paschi di Siena, which is in the market with its EUR 2.5bn hyper-dilutive rights issue.

In response to the Basel Committee’s agreement earlier this year to recognise the progress made towards the European Banking Union (EBU) in the G-SIB framework, the EBA on 29 September published for the first time specific data to be used in the identification of global systemically important institutions. The data set covers the 30 largest institutions in the EU with a leverage ratio exposure measure exceeding EUR 200bn and will be updated annually.

“Under the agreement, a parallel set of G-SIB scores will be calculated for G-SIBs headquartered in the EBU and used to determine their buffer rate allocation. The parallel scores recognise 66% of the score reduction that would result from treating intra-EBU exposures as domestic exposures under the G-SIB scoring methodology,” Lambert explained.

Based on year-end 2021 data, BNP Paribas has the highest level of cross-jurisdictional claims. BNP Paribas is most likely to benefit from the change in methodology as its overall G-SIB indicator last year just crossed into the higher 2% bucket. The group’s G-SIB indicator was 333 compared to a threshold of 330.

Cross-jurisdictional claims of EU G-SIBs (EUR 000)

EBA, Scope Ratings

The Financial Stability Board is expected to publish an updated list of G-SIBs in November, based on year-end 2021 data. National competent authorities will then identify G-SIIs based on the global denominators and G-SIB exercise results by 15 December. Any higher capital buffer requirements would then apply from January 2024. There are currently eight EU-based G-SIBs: BNP Paribas, Deutsche Bank, Societe Generale, Credit Agricole Group, Banco Santander, UniCredit, ING Bank and Groupe BPCE.

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