Domestic Systemically Important Banks
Domestic Systemically Important Banks (“D-SIBs”: overview)
In October 2012 the Basel Committee on Banking Supervision published a document on “a framework for dealing with domestic systemically important banks” (the “Basel D-SIB framework”). This followed the work that had already been done on the policy measures designed for global systemically important banks (“G-SIBs”), to enhance their loss absorbency capacity over and above Basel III requirements.
The Basel D-SIB framework is focused on the impact a bank may have on the domestic economy if it fails (rather than the risk of failure), and therefore not only covers consolidated groups, but also subsidiaries. Jurisdictions may also classify a branch as a D-SIB. It is designed to provide a complementary perspective to the G-SIB framework, focusing on the impact that the distress of banks (including international banks) may have on a jurisdiction’s domestic economy.
Approach to D-SIB identification in the Isle of Man
The Authority’s D-SIB assessment is based on the following four factors, with appropriate weightings, drawn from the Basel D-SIB framework:
- Substitutability / jurisdiction’s financial institution infrastructure
A two stage approach is used to assess and then identify D-SIBs. The first stage involves assessing the quantitative factors of size and substitutability, using an indicator based approach. The second qualitative stage involves judgement and naturally is more subjective. This is designed to complement the quantitative assessment and to refine the assessment made purely on that first basis.
The D-SIB identification methodology applies both to branches of overseas banks as well as banks incorporated in the Isle of Man.
The Authority notifies individual banks of their designation as a D-SIB and provides details of the reasons that led to that designation. The Authority shares its decision internally with the Resolution & Deposit Compensation Team (as Resolution Authority), and other relevant supervisors and resolution authorities.
Approach to D-SIB supervision in the Isle of Man
The Authority's Supervisory Methodology Framework is designed in such a way that the highest impact firms receive the most attention under a defined engagement model, and the Authority has a lower risk appetite for significant issues that may arise in these firms.
Any bank that is assessed as a D-SIB is treated as "high impact" under the methodology. In essence, this means that they are subject to the most intense form of supervision including:-
- In depth and regular risk assessments, focusing on inherent risk and controls, which may lead to further information requests arising.
- A robust and proactive engagement programme including:
- Meetings with a range of bank stakeholders to better understand risks and issues (including from a wider banking sector perspective) and to discuss areas of concern or complexity; and
- Review and challenge of information and returns submitted by banks under the regulatory framework.
- Additional or enhanced reporting requirements to address specific areas of concern or market changes.
- The requirement to have a deep and thorough understanding of the recovery planning, resolution planning and resolution strategy.
The supervision strategy of an individual D-SIB may be differentiated between a branch of an overseas bank and a bank incorporated in the Isle of Man.
Capital buffers (higher loss absorbency)
For banks incorporated in the Isle of Man assessed as D-SIBs, the Authority may set additional capital buffers of between 0% and 2.5% of a bank’s risk weighted assets, such buffers to be met by common equity tier 1 capital.
Supervisory Policy Statement
Previous Related Documents
Authority Consultation Papers and associated information
- CP “Domestic Systemically Important Banks (“D-SIBs”)”, issued February 2016
- Feedback on D-SIB CP, issued October 2016
- Draft Supervisory Policy Statement, issued to banks in March 2017 for comment by 30 April 2017
- Final supervisory guidance on Domestic Systematically Important Banks - June 2017
Tri-Party Discussion Papers