The Global Systemically Important Banks: An Update

by: Timothy Taylor

The large global banks were at the heart of the global financial crisis. In response to the crisis, the international Financial Stability Forum was upgraded to the Financial Stability Board (FSB) in 2009, with the full participation of finance ministers and even heads of government. The newly established FSB then published an integrated set of policy measures, such as capital surcharges and resolution plans, to address the systemic and moral hazard risks associated with global systemically important banks (G-SIBs). Eight years later, it is time to take stock of the impact of these measures. We answer three questions on what happened to the G-SIBs. First, have they shrunk in size? Second, are they better capitalised? Third, and in reference to the reported end of global banking, have they reduced their global reach?

Thus writes Dirk Schoenmaker in "What happened to global banking after the crisis?" written as a Policy Contribution for the Bruegel think-tank (2017, Number 7), The short answers to his three question are: 1) No; 2) Yes; 3) Yes.

Schoenmaker offers a list of 33 global systemically important banks--that is, the banks that governments feel compelled to rescue out of fear that their failure could crash the financial systems of a country or two. Some examples of the larger ones include BNP Paribas (OTCQX:BNPQY), Deutsche Bank (NYSE:DB), and Groupe Crédit Agricole in Europe; Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C), and Wells Fargo (NYSE:WFC) in the U.S.; Bank of China (OTCPK:BACHY), China Construction Bank (OTCPK:CICHY), and Industrial and Commercial Bank of China (OTCPK:IDCBY), all of course in China; HSBC (NYSE:HSBC) and Barclays (NYSE:BCS) in the U.K.; and Mitsubishi UFJ FG (OTCPK:MBFJF) and Sumitomo Mitsui FG (NYSE:SMFG) in Japan.

Here's a summary chart, with the top panel showing assets, reserves, and international reach of these 33 G-SIBs in 2007 and in 2015. From the bottom line of the two panels, the total assets of these institutions rose slightly from 2007 to 2015; their capital reserves rose fairly dramatically; and the share of their business done at home rather than regionally or globally declined.

Schoenmaker has lots more to say about these patterns. For example, assets for these institutions have risen in China, Japan, and the United States, but fallen in the euro area and the U.K. Capital reserves are quite a bit higher in the U.S. and China than in the euro area. Bottom line: "We conclude that reports on the death of global banking are greatly exaggerated."

Disclosure: No positions

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.