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The Global Financial Markets Association (GFMA)1, Institute of International Finance (IIF)2 and International Swaps and Derivatives Association (ISDA)3 appreciate the opportunity to respond to the Committee’s Consultative Document on the “Global systemically important banks – revised assessment framework” and to assist the Committee in refining its approach to the G-SIB assessment framework. We summarise below our high-level response to the consultation.
EXECUTIVE SUMMARY
We welcome the opportunity to provide comments in response to the Basel Committee on Banking Supervision (BCBS) consultation on the global systemically important bank (G-SIB) revised assessment framework (the “revised G-SIB assessment framework”).4
We emphasize the importance of developing a revised G-SIB assessment framework based on the concept of a BCBS minimum standard, to support global compliance. Additionally, it is crucial that jurisdictions finalize their approach to averaging after the BCBS policy process has concluded.
While we note the focus of the BCBS consultation concerns perceived window-dressing behaviour, we do not believe that the proposal is founded on robust evidence of such behaviour. Our feedback is therefore intended to help achieve higher-quality data over the financial year, to support the G-SIB assessment framework, rather than focusing on purported window-dressing behaviour. In relation to concerns over perceived window-dressing behaviour, we believe that further study is needed to effectively identify any such perceived behavior as well as the factors involved in, the true extent of, and the rationale underlying such practices. In particular, we believe that the results of BCBS Working Paper 425 are inconclusive in relation to G-SIB firms’ management of OTC derivatives and repos. Furthermore, we do not think the BCBS is justified in using the findings of BCBS Working Paper 42 to propose changes across the wider G-SIB indicator set.
We also highlight that due to the relative nature of the G-SIB score calculation, the possibility of window-dressing G-SIB scores is remote, given the indicators used have a low correlation to the overall G-SIB score. To further support this point, we have provided some analysis as part of our response.
We recommend that any changes to the current framework should be proportional to the anticipated supervisory benefits and should not result in unintended consequences such as reduced data assurance or data quality. Therefore, the BCBS’s cost-benefit analysis should consider the impact to banks in terms of operational challenges and infrastructure investments, weighing them against any expected supervisory benefit to ensure that any changes to the G-SIB assessment framework are appropriately justified. We believe that the BCBS could bring costs and benefits into greater balance with less-frequent averaging, as this would improve data quality and reduce volatility in the G-SIB assessment framework while minimizing undue operational complexity.
We believe that the rationale for any proposed changes across the wider G-SIB indicator set should be driven by appropriate analysis in relation to the specific indicators concerned. This is particularly relevant given that BCBS Working Paper 42 only addresses OTC derivatives notional and repos, and therefore across-the-board changes to frequency across the wider G-SIB indicator set is not justified by the supporting analysis.