The Bangko Sentral ng Pilipinas (BSP) has completed its determination of domestic systemically important banks (D-SIBs). Following the framework released in October 2014, banks were classified depending on the extent of their systemic importance using pre-defined indicators for (a) size, (b) interconnectedness, (c) substitutability and market reliance as a financial market infrastructure as well as (d) complexity.
The D-SIBs framework is in line with the initiatives pursued under the Basel 3 reform agenda. D-SIBs are characterized as banks whose distress or disorderly failure would cause significant disruptions to the wider financial system and economy.
The BSP noted that it will update the list of D-SIBs every year and each bank will be individually notified of their classification. Those identified as D-SIBs will be required to maintain additional Common Equity Tier 1 (CET1) of between 150 and 250 basis points of the bank’s Risk-Weighted Assets. The higher capital requirements, however, will be staggered beginning January 2017 until the same are fully in place by January 2019.
D-SIBs must also meet higher supervisory expectations. For example, in the annual submission of their ICAAP document (Internal Capital Adequacy Assessment Process), D-SIBS must have in place acceptable recovery plans which will be carried out in the event of breaches in capital requirements.
BSP Governor Amando M. Tetangco, Jr. noted that “the higher bar for D-SIBs in terms of capital requirement and supervisory expectations serves to strengthen the system by lowering the probability of systemic bank failures”.
The Governor reiterated that the banking system remains in a strong position and that the D-SIBs guidelines are “pro-active measures to sustain such strength”. He added that the higher minimum CET1 threshold would not be disruptive since “our internal simulations affirm that a reasonable earnings retention program would be sufficient to bring the capital level of D-SIBs within the required threshold”.