The Basel Committee has revised the designation criteria for global systemically-important banks (GSIBs) first adopted in 2013 with this new framework following a 2017 consultation. Although there was little doubt that global regulators would retain the basic GSIB framework and its objective of higher capital for banks deemed the riskiest to reduce negative externalities, Basel has not only stood by the GSIB construct, but also strengthened it in several ways. The new approach will prove particularly costly to large banks with significant insurance activities, as insurance subsidiaries now count in various indicators that could lead to designation and, accordingly, capital surcharges. However, Basel drew back from the 2017 proposal simply to end the cap on counting indicators of “substitutability” – i.e., market dependence on core functions of the bank. Although the substitutability indicator has been beefed up, the cap is retained pending further study.
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