EBA’s update on systemic importance indicators strengthens EU financial stability by refining G-SII identification, increasing transparency, and enhancing regulatory oversight.
The European Banking Authority (EBA) has released its 2023 update on systemic importance indicators for the 33 largest financial institutions within the European Union (EU), each with a leverage ratio exposure exceeding EUR 200 billion. This update is crucial for the identification and ongoing assessment of Global Systemically Important Institutions (G-SIIs).
The 2023 data reveals significant trends, including a 1.3% increase in total exposures and substantial rises in securities outstanding and Level 3 assets, highlighting the growing complexity and interconnectedness of these institutions. These G-SIIs, due to their size and systemic importance, are subject to stringent regulatory oversight and higher capital buffer requirements. The enhanced transparency and rigorous disclosure standards introduced by the EBA ensure that these institutions are better monitored, aligning with global standards to maintain financial stability.
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Key Data Updates and Indicators
The EBA acts as a central data hub, annually updating and publishing key systemic importance indicators that reflect the evolving financial landscape. These indicators are essential for regulatory bodies, especially in identifying institutions that qualify as G-SIIs, as per the guidelines set by the Basel Committee on Banking Supervision (BCBS) and the Financial Stability Board (FSB). The end-of-2023 data reveals several critical trends among these large institutions, offering deep insights into their risk profiles and systemic importance.
Total Exposures
A consistent sample of 27 institutions showed a 1.3% increase in total exposures by the end of 2023. This rise highlights the growing complexity and interconnectedness of these institutions within the EU financial system, reflecting their expanding influence and the consequent need for robust regulatory oversight.
Securities Outstanding
The indicator for securities outstanding surged by 14.9%, marking the highest aggregate value since 2013. This significant increase underscores heightened market activity and potential risk concentration in these institutions’ securities portfolios, which could pose substantial challenges in periods of market volatility.
Level 3 Assets
Level 3 assets, known for their illiquidity and valuation challenges, increased by 12.6%. This growth indicates a rising reliance on complex financial instruments, which could complicate risk management during financial stress, highlighting the importance of stringent oversight and accurate valuation.
Assets Under Custody
Reflecting the growing demand for custodial services, the assets under custody indicator observed an 11.2% increase. As institutions expand their asset management capabilities, the role of custodial services becomes increasingly critical, particularly in safeguarding investor assets and ensuring the stability of the financial system.
Payments Activity
Contrary to the upward trends observed in other indicators, the payments activity metric showed a decline, decreasing by 3.7% from 2022 to the end of 2023. This decline may suggest shifts in transaction volumes or changes in payment processing dynamics across the EU, warranting further analysis to understand its implications on the financial system's operational efficiency.
Legal Foundations and Regulatory Framework
The identification of G-SIIs, which leads to higher capital buffer requirements, is a process managed by national competent authorities within the EU. This identification is grounded in global financial regulations and standards, specifically relying on the global denominators and results from the G-SIB (Global Systemically Important Banks) exercise, which are published annually by the BCBS and FSB each November.
Upon the publication of bank-specific results and buffer rate allocations by competent authorities, these higher capital buffer requirements generally come into effect after approximately one year. This transition period allows institutions adequate time to adjust and meet the enhanced regulatory demands. The goal is to ensure that G-SIIs maintain robust capital reserves to absorb potential shocks during periods of financial distress, thereby mitigating systemic risks.
EBA Guidelines on G-SII Disclosure
The EBA’s Guidelines on the disclosure of G-SIIs, as outlined in the updated EBA/GL/2022/11, establish uniform requirements for disclosing the values used in the identification and scoring of G-SIIs. These guidelines are aligned with internationally agreed standards developed by the BCBS and FSB, ensuring that the identification process is consistent and transparent across jurisdictions.
The EBA supports the disclosure of cross-jurisdictional indicators and relevant data, particularly in the context of the BCBS’s ongoing review of the G-SIB assessment methodology. This transparency is critical in ensuring that EU banks are assessed on a level playing field with their global counterparts, fostering greater consistency and fairness in the global financial landscape.
Enhanced Transparency and Disclosure Standards
To promote a level playing field and increase transparency within the EU financial market, the EBA’s current disclosure standards exceed the minimum requirements set by the BCBS. This enhanced transparency is evident in both the granularity of the disclosed information and the broader scope of institutions included in the reporting.
Notably, some of the group-specific templates published by the EBA include data from institutions that have not directly participated in the BCBS’s G-SIB exercise. This comprehensive approach ensures that all relevant institutions are covered, providing a more complete and nuanced view of systemic risk within the EU. By capturing a wider array of data, the EBA enhances the ability of regulatory bodies to identify and manage risks more effectively, thereby supporting the overall stability of the financial system.
Regulatory Technical Standards (RTS) for G-SII
The Regulatory Technical Standards (RTS) on the methodology for identifying and defining subcategories of G-SIIs, along with the Guidelines on G-SII disclosure, have been developed under Directive 2013/36/EU (Capital Requirements Directive IV - CRD IV). These standards are based on internationally agreed frameworks, particularly those established by the BCBS and FSB. The RTS and Guidelines ensure that the identification process for G-SIIs is rigorous, transparent, and aligned with global best practices, thereby supporting the overall stability of the global financial system. By adhering to these standards, the EBA ensures that the EU’s financial institutions are not only compliant with global norms but are also equipped to manage the complexities of a rapidly evolving financial environment.
The EBA’s 2023 update on systemic importance indicators for the largest EU institutions underscores the ongoing efforts to refine the identification and regulation of Global Systemically Important Institutions (G-SIIs). By providing detailed, up-to-date data and exceeding international disclosure standards, the EBA ensures that the EU’s financial institutions are adequately monitored and regulated to maintain global financial stability. The rigorous application of these guidelines supports the stability of the EU’s financial system while contributing to the broader goal of global financial resilience.
