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A Comparison Of U.S. And International G-SIBs

A Comparison Of U.S. And International G-SIBs by OFR

by Paul Glasserman and Bert Loudis

The authors find that the largest U.S. banks rank relatively high on systemic importance based on measures of size, interconnectedness, complexity, cross-jurisdictional activity, and the provision of services with limited substitutes. These systemic importance indicators are intended to measure the threat to global financial stability that a large bank would pose if it were to fail. U.S. banks particularly dominate the complexity and substitutability categories. Banks with higher systemic importance scores do not consistently have higher risk-based capital ratios, despite the importance of capital as a buffer against the failure of systemically important institutions. Fluctuations in exchange rates can have a significant impact on these scores, which is a potential weakness of the methodology.

This brief examines a set of systemic importance indicators established by the Basel Committee on Banking Supervision (Basel Committee) and compares the largest U.S. banks with the largest foreign banks. Overall, these indicators show the largest U.S. banks rank quite high in systemic importance and dominate certain indicators of systemic importance. The banks we consider are those identified by the Basel Committee as global systemically important banks (G-SIBs). These are large, complex, internationally active banks whose failure could create cross-border spillover risks. The G-SIB identification is made by national banking supervision authorities, primarily based on a scorecard of systemic importance indicators established through the Basel Committee in 2011 and implemented in each jurisdiction.2 An earlier OFR brief examined the systemic importance scoring method and analyzed the scores of all U.S...