Systemic entities of the banking sector

The issue of systemic institutions was put on the agenda of financial supervisory authorities by the G20 during the Pittsburgh Summit, in September 2009, recommending the implementation of specific standards proportionate to the cost of a potential default, with the view of providing a framework for the activity of the most important international financial institutions. The declared aim is to put an end to the moral hazard situation linked to the existence of “too-big-to-fail” or “too-interconnected-to-fail” institutions given the risks they pose to the financial sector and the real economy. Actually, such institutions could hope for a public support in case of difficulties and, thus, be tempted to take more risks.

From 2009, these institutions called Systemically Important Financial Institutions (SIFIs) have been defined as financial institutions whose “distress or disorderly failure, because of their size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity”.

This identification is performed at the level of different perimeters where it makes sense, i.e. domestic, regional or global. At the global level, the identification of systemic entities (banking and insurance institutions) has been entrusted to the Financial Stability Board. At the European level, the international methodologies for identifying global or domestic systemically important banks have been transposed into European law through the CRD IV directive (Article 131) providing that “Member States shall designate the authority in charge of identifying, on a consolidated basis, global systemically important institutions”. In France, the authority is the ACPR (see next section).

The identification of systemic institutions allows, in a transparent way, to apply them specific supervisory measures aiming at both reducing the risks posed by these institutions and limiting the moral hazard that results from the implicit public guarantee they receive. Thus, institutions identified as systemic are subject to reinforced supervisory measures, for instance additional capital requirements, starting to enter into force from 2016 for the banking sector and that will be fully effective from 2019.

At the French level, the Autorité de contrôle prudentiel et de resolution is in charge of the identification of systemically important entities. Thus, it determines for the banking sector the list of global systemically important institutions (G-SII) and that of other systemically important institutions (O-SII), as well as the capital buffers associated.

For G-SIIs, the ACPR actively participates in the international identification exercise coordinated by the Basel Committee; the identification by the Financial Stability Board (FSB) is legally binding neither in French nor in European law, the list of G-SIBs (cf. next section) published every year by the FSB needs to be published by the ACPR.

For O-SIIs, the principles of Basel methodology used in the CRDIV Directive have been specified by guidelines of the European Banking Authority (EBA).

The ACPR also participates in the drafting of the list of global systemically important insurers (G-SIIs).

• Analysis and synthesis n° 39 on "Identification of global banking and insurance groups" (in French)

• Economic and Financial Debate n°33 on "The Impact of the Identification of GSIBs on their Business Model"

• Banque de France Bulletin no. 247: Article 2 on "A specific regulatory framework for global systemically important banks"

The following table gathers the main information concerning the identification of G-SIIs (global perimeter) and O-SIIs (domestic perimeter).