RBS Demoted in FSB's Global Systemic Bank List, BBVA Dropped

  • RBS drops to lowest category for additional loss absorbency
  • China Construction Bank joins list of global systemic lenders

Royal Bank of Scotland Group Plc will face a reduced capital surcharge after dropping to the bottom rung of the Financial Stability Board’s 2015 list of the world’s most systemically important banks. China Construction Bank Corp. joined the global ranking, while Banco Bilbao Vizcaya Argentaria SA was removed.

QuickTake Too Big to Fail

The FSB, led by Bank of England Governor Mark Carney, assigned RBS a 1 percent surcharge, down from 1.5 percent last year. HSBC Holdings Plc and JPMorgan Chase & Co. will continue to face the highest requirement -- 2.5 percent of risk-weighted assets -- imposed on the banks on the list, which comprises 30 lenders.

Removing BBVA from the list is consistent with the bank’s business model as a predominantly retail lender present in more than 30 countries, a bank spokesman said. “It implies fewer capital requirements on the one hand, though the final net impact is yet to be determined as it will depend on other regulatory initiatives,” he said.

Regulators, seeking to prevent any repeat of the 2008 crisis, are ranking financial firms by their potential to cause global mayhem should they collapse and forcing them to hold bigger financial cushions. The surcharge represents the capital a bank must have beyond the minimums already set by global regulators to ensure all internationally active banks can cope with losses.

Expansion Abroad

Under international agreements, the standards -- known as Basel III -- are already being progressively applied and are scheduled to kick in fully from 2019. The FSB’s surcharges will begin phasing in next year, for full application from Jan. 1, 2019.

The list published today will apply from January, 2017, superseding the ranking published in November last year, which will apply in 2016.

The inclusion of China Construction Bank was probably driven by the size of its balance sheet and its expansion abroad, said Xuanlai He, a credit analyst at Commerzbank AG.

“CCB’s overseas activities have significantly increased in the past quarters,” he said in a note to clients. “We believe such a change will drive CCB’s appetite for additional Tier 1 capital.” He estimates the lender will need to issue as much as $12.6 billion of the securities, which are designed to absorb losses while the issuer remains a going concern.

Closer Supervision

In this year’s list, the banks in the top two surcharge buckets are unchanged from a year earlier. The second bucket, with a 2 percent surcharge, contains Barclays Plc, BNP Paribas SA, Citigroup Inc. and Deutsche Bank AG.

In addition to the capital surcharge, the FSB’s list is also used more broadly to identify the global systemically important banks targeted for closer supervision. Banks on the list will also be required to have a certain level of total loss-absorbing capacity, or TLAC. That’s a broader measure that includes some debt securities that can be wiped out to cover losses on top of a bank’s equity, to protect taxpayers from having to bail out failed banks.

The FSB is set to make public its final TLAC rules on Nov. 9 in Basel, for approval by the Group of 20 summit in Antalya, Turkey.

The FSB also updated its list of global systemically important insurers, removing Assicurazioni Generali SpA from the list of nine companies, and adding Aegon NV.

The insurers on the list could face an average increase of 10 percent to capital requirements under new standards proposed by regulators. The increase would be as high as 18.75 percent for some unregulated banking activities and as low as 6 percent for traditional insurance products, the International Association of Insurance Supervisors said last month.

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