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The Financial Stability Board (FSB) recently issued a list of 30 global systemically important banks (G-SIBs). The list comprises names of large banks with extensive global presence whose failure can rattle the global economy.
These banks are required to meet the board’s total loss-absorbing capacity standard, which is a measure of the capital these banks need to hold in order to avoid the need for bailouts. They are also segregated into buckets, depending on the extra capital required.
Per the list, JPMorgan (NYSE:JPM) has been regarded as the most dangerous of the 30 banks and is required to hold an extra 2.5% capital. It is the sole bank in the second most critical bucket, with no bank in the top tier.
Citigroup (NYSE:C) moved down to join Bank of America (NYSE:C) , Deutsche Bank (NYSE:DB) and HSBC Holdings (NYSE:C) which remain in the third bucket. This implies that these banks need to hold 2% extra capital.
The next level, which needs banks to have a capital buffer of 1.5%, consists of eight banks. While Credit Suisse (NYSE:C) has been moved down from this bucket, two Chinese banks — Bank of China (NYSE:C) and China Construction Bank (NYSE:C) have been raised to this rank.
The final bucket consists of names such as Morgan Stanley (NYSE:MS) , State Street Corporation (NYSE:STT) and UBS Group (NYSE:UBS) . The addition of Royal Bank of Canada (NYSE:RY) to the list in place of Groupe BPCE has been a major change.
Royal Bank of Canada announced that it meets the required 1% of additional capital and thus does not expect any effect on its capital position.
The FSB was established after the 2008 crisis to protect the markets from another shock. Banks on the list are supposed to comply with the additional capital requirement effective Jan 1, 2018.
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