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 will notify individual banks of their designation as a D-SIB and provide details of the analysis which has led to that designation. This will take place for the first time in 2018 and will be a recurring process thereafter.
Approach to D-SIB supervision in the Isle of Man
The Authority plans to introduce a more graduated impact assessment for the banking sector, with D-SIBs considered the highest impact firms. This will lead to the Authority fine tuning and tailoring its strategy for supervising banks generally, and, for individual D-SIBs will include:
- More in depth assessments of D-SIBs (such as more frequent on-site assessments, and / or dialogue and engagement on specific areas of risk or importance, for example through more formal regular meetings);
- An increased focus on the risk management, governance structures, and risk profiles, including more frequent engagement with boards (for Isle of Man incorporated D-SIBs), senior management, and receipt of risk and audit reports;
- A deep and thorough understanding of the recovery planning, resolution planning and resolution strategy for the D-SIB, both at a local and a group level.
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.
For banks incorporated in the Isle of Man assessed as D-SIBs, the Authority may set 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. The Authority will start to discuss and set any HLA requirements with such D-SIBs in 2018 with the following transitional arrangements applying:-
- At least 50% by June 2019
- 100% by December 2019
Tri-Party Discussion Papers
- DP “Domestic Systemically Important Banks (“D-SIBs”) including recovery and resolution”, issued January 2014
- Feedback on the D-SIB DP, issued July 2014
Authority Consultation Papers and associated information