Fed approves 2018 global indicator amounts for GSIB surcharge calculation

The 2018 aggregate global indicator amounts (shown below) that the largest banking organizations will use to calculate a risk-based capital surcharge are were approved Dec. 6 by the Federal Reserve Board and become applicable upon publication in the Federal Register, expected Wednesday.

As detailed in the Register notice, the Fed Board’s GSIB surcharge rule establishes a methodology to identify global systemically important bank holding companies in the United States (GSIBs) based on indicators that are correlated with systemic importance. The rule requires a firm to calculate its GSIB score using a specific formula, “Method 1.” Method 1 uses five equally weighted categories that are correlated with systemic importance – size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity – and subdivided into twelve systemic indicators. For each indicator, a firm divides its own measure of each systemic indicator by an aggregate global indicator amount.

The firm’s Method 1 score is the sum of its weighted systemic indicator scores expressed in basis points. The GSIB surcharge for the firm is then the higher of the GSIB surcharge determined under Method 1 and a second method that weights size, interconnectedness, cross-jurisdictional activity, complexity, and a measure of a firm’s reliance on wholesale funding (instead of substitutability). 

The aggregate global indicator amounts used in the score calculation under Method 1 are based on data collected by the Basel Committee on Banking Supervision (BCBS). The BCBS amounts are determined based on the sum of the systemic indicator scores of the 75 largest U.S. and foreign banking organizations as measured by the BCBS, and any other banking organization that the BCBS includes in its sample total for that year.

Regulation Q; Regulatory Capital Rules: Risk-based Capital Surcharges for Global Systemically Important Bank Holding Companies

Source: Federal Register