In the wake of the financial crisis, the G20 has come up with a list of 30 global lenders who are deemed as too important to fail.
Citi has joined the global regulators’ list of banks which are systemically important and has replaced HSBC. This means from 2019, Citi’s capital reserves will have to be now boosted to preserve financial stability.
In the wake of the financial crisis from 2007-2009, the group of 20 economies (G20) had agreed to mitigate the collapse of big banks by boosting capital reserve ratios.
Accordingly members were told to prepare a list of 30 significant lenders who will have to begin holding bonds which can be written down to replenish burnt capital in the event of a financial crisis. This is to take effect from 2019.
In its annual update rankings, the G20’s Financial Stability Board (FSB), has added Citi in the replacement of HSBC. Citi will now face a 2.5% capital surcharge on top of global minimum requirements.
In an e-mailed statement, Citi has disclosed that the measures announced by the FSB will not have any impact on its binding regulatory metrics.
Typically, big lenders on this list are required to meet or exceed the amount of capital they are required to hold, in order to boost and dispel any doubts about their resilience.
In the near future, the FSB is likely to require lenders to agree to a higher leverage ratio. This ratio is essentially a broad measure of capital to non-risk-weighted assets. Currently the ratio is set a minimum of 3% for all banks across the world.
The FSB will soon decide whether these 30 heavy weight lenders should be subject to the same leverage ratio “surcharge” or, whether a bucket approach would be more rational.
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