Basel Committee on Banking Supervision have created 5 categories to measure the systemic risk posed by...
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Basel Committee on Banking Supervision have created 5 categories to measure the systemic risk posed by Globally Systemic Important Banks ("G-SIBS"). A G-SIB is a bank whose failure could pose a threat to the international financial system. A bank designated as a G-SIB must hold more risk-based capital to enhance its resilience and is subject to additional regulatory oversight. It's 2019, and you are a Senior Examiner at a Regulatory Agency, assisting in determining the G-SIB surcharge applicable to your portfolio of banks. The Data Team at the Regulatory Agency has provided you with the scores on the 5 risk buckets used to determine the total G-SIB Score. Based on the G-SIB scores, you will assign the banks to the buckets 1-5, and determine a capital surcharge in the form of additional CET 1 capital that they need to hold, as shown in the table below: G-SIB Buckets & CET1 Surcharge Bucket 5 (+3.5% CET1) Bucket 4 (+2.5% CET1) Bucket 3 (+2.0% CET1) Bucket 2 (+1.5% CET1) Bucket 1 (+1.0% CET1) Scores 530-629 430-529 330-429 230-329 130-229 Data Team's output is below: Complexit Cross- Name Citigroup China Construction BNP Paribas Bank of America Goldman Sachs y 326 229 257 362 415 Jurisdictional 461 81 536 170 177 Interconn ectedness Size Substitutability G-SIB Score 278 279 256 212 259 199 Each of the 5 buckets have equal weight of 20%. 420 242 331 151 500 221 282 440 182 1. Calculate the final G-SIB Scores for the 5 banks. 2. In your portfolio, which bank poses the highest systemic risk, and which bank poses the lowest systemic risk? 3. How much capital surcharge will be assessed against each of the 5 banks? Name Citigroup Goldman Sachs Bank of America China Construction Bank BNP Paribas Capital Surcharge 4. You are the CEO of BNP Paribas. Would you prefer to be in a higher bucket or a Lower bucket, next year? Why? 5. What steps can you take as the CEO to move towards your desired G-SIB bucket? APPENDIX A Category (and weighting) Interconnectedness (20%) Intra-financial system liabilities Intra-financial system assets Securities issued by the bank Short Term Wholesale Funding (20%) Cross-jurisdictional activity (20%) Size (20%) Individual Indicators Complexity (20%) Daily average of its short-term funding obligations for the previous calendar year, weighted by factors related to maturity and liquidity. Cross-jurisdictional claims Cross-jurisdictional liabilities Total exposures (as defined in the Basel III lev'g ratio) OTC derivatives notional value Level 3 assets Held for trading and available for sale value Indicator Weightings 6.67% 6.67% 6.67% 20.0% 10% 10% 20% 6.67% 6.67% 6.67% Basel Committee on Banking Supervision have created 5 categories to measure the systemic risk posed by Globally Systemic Important Banks ("G-SIBS"). A G-SIB is a bank whose failure could pose a threat to the international financial system. A bank designated as a G-SIB must hold more risk-based capital to enhance its resilience and is subject to additional regulatory oversight. It's 2019, and you are a Senior Examiner at a Regulatory Agency, assisting in determining the G-SIB surcharge applicable to your portfolio of banks. The Data Team at the Regulatory Agency has provided you with the scores on the 5 risk buckets used to determine the total G-SIB Score. Based on the G-SIB scores, you will assign the banks to the buckets 1-5, and determine a capital surcharge in the form of additional CET 1 capital that they need to hold, as shown in the table below: G-SIB Buckets & CET1 Surcharge Bucket 5 (+3.5% CET1) Bucket 4 (+2.5% CET1) Bucket 3 (+2.0% CET1) Bucket 2 (+1.5% CET1) Bucket 1 (+1.0% CET1) Scores 530-629 430-529 330-429 230-329 130-229 Data Team's output is below: Complexit Cross- Name Citigroup China Construction BNP Paribas Bank of America Goldman Sachs y 326 229 257 362 415 Jurisdictional 461 81 536 170 177 Interconn ectedness Size Substitutability G-SIB Score 278 279 256 212 259 199 Each of the 5 buckets have equal weight of 20%. 420 242 331 151 500 221 282 440 182 1. Calculate the final G-SIB Scores for the 5 banks. 2. In your portfolio, which bank poses the highest systemic risk, and which bank poses the lowest systemic risk? 3. How much capital surcharge will be assessed against each of the 5 banks? Name Citigroup Goldman Sachs Bank of America China Construction Bank BNP Paribas Capital Surcharge 4. You are the CEO of BNP Paribas. Would you prefer to be in a higher bucket or a Lower bucket, next year? Why? 5. What steps can you take as the CEO to move towards your desired G-SIB bucket? APPENDIX A Category (and weighting) Interconnectedness (20%) Intra-financial system liabilities Intra-financial system assets Securities issued by the bank Short Term Wholesale Funding (20%) Cross-jurisdictional activity (20%) Size (20%) Individual Indicators Complexity (20%) Daily average of its short-term funding obligations for the previous calendar year, weighted by factors related to maturity and liquidity. Cross-jurisdictional claims Cross-jurisdictional liabilities Total exposures (as defined in the Basel III lev'g ratio) OTC derivatives notional value Level 3 assets Held for trading and available for sale value Indicator Weightings 6.67% 6.67% 6.67% 20.0% 10% 10% 20% 6.67% 6.67% 6.67%
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1 Calculate the final GSIB Scores for the 5 banks Citigroup 326 229 257 362 415 1589 China Construct... View the full answer
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