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Fitch: New Rules Would Increase Bancassurers' G-SIB Scores
May 26, 2017 / 8:50 AM / 7 months ago

Fitch: New Rules Would Increase Bancassurers' G-SIB Scores

(The following statement was released by the rating agency) LONDON, May 26 (Fitch) Banks with significant insurance subsidiaries would score higher for systemic importance if the proposed new assessment methodology is adopted, Fitch Ratings says. This could reverse the recent trend of mainly US banks rising up the list of global systemically important banks (G-SIBs), as bancassurance is more common in European markets, notably France. Any banks moving onto the G-SIB list or into a higher bucket on the list would face higher common equity Tier 1 (CET1) requirements. However, most of the G-SIB bancassurers are already well capitalised and would not need to increase capital as a consequence of moving to a higher bucket or seek to reduce their insurance business to avoid it. We expect few, if any, new bancassurers would be designated as G-SIBs and we do not expect that the proposals would trigger changes in our ratings. The inclusion of insurance subsidiaries in the Basel Committee on Banking Supervision proposals to revise its G-SIB assessment framework, published in March 2017, accounts for 40% of the estimated aggregate impact of the proposals on banks' scores for systemic importance, based on data from the end-2015 G-SIB assessment exercise. The G-SIB methodology weighs a number of systemic indicators in five categories to arrive at a relative score for each G-SIB compared with a broader sample population including the largest 75 banks globally. The scores largely determine which banks are designated G-SIBs by the Financial Stability Board in its annual November update, and how much additional CET1 capital each G-SIB must hold. The proposal to include banks' insurance activities in the category calculations for size, interconnectedness, and complexity would increase bancassurers' G-SIB scores (by up to 57bp for one of the banks in the Basel Committee's analysis), moving them towards or onto the G-SIB list, or further up the list if they are already on it. Meanwhile, the scores of banks without insurance operations would modestly decrease, as the scoring is relative to the sample population. The complexity category was an important cause of the increases. Including banks' insurance subsidiaries would increase "trading and available-for-sale securities" in the sample by EUR1.9 trillion, nearly 60%, increasing those banks scores' relative to the wider sample population. The Basel Committee also proposes removing the cap on the "substitutability" category score. This category is intended to reflect the extent to which other banks could step in and provide the same services in the event of failure. Fitch's calculations show that removal of the cap would affect four banks, all in the US: JP Morgan Chase, Citigroup, Bank of New York Mellon and State Street, largely due to their amount of assets under custody. However, we do not believe these banks would face higher capital requirements as a result of the proposals. The US approach to setting G-SIB capital requirements is based on the higher of the Basel Committee's approach and a separate, generally more conservative approach that replaces the Basel Committee's substitutability category with a wholesale funding indicator. The Basel Committee is also considering a new indicator for short-term wholesale funding, which draws on data from the Net Stable Funding Ratio, finalised in 2014. But there are significant definitional differences between the proposals and the US approach, suggesting that they are unlikely to converge. The Basel Committee's consultation runs until 30 June 2017. If adopted, the changes could influence the 2019 G-SIB assessment, used to set CET1 requirements from January 2021. Contact: Alan Adkins Group Credit Officer Financial Institutions +44 20 3530 1702 Fitch Ratings Limited 30 North Colonnade London E14 5GN Monsur Hussain Senior Director Financial Institutions +44 20 3530 1793 David Prowse Senior Analyst Fitch Wire +44 20 3530 1250 The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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