Governments will still bail out G-SIFI banks
The Financial Stability Board this month released its list of global systemically important financial institutions (G-SIFIs).
The FSB defines SIFIs as "financial institutions whose distress or disorderly failure, because of their size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity."
The conventional wisdom holds that banks and other institutions do not want to be on the list, as it implies higher capital requirements and greater regulatory scrutiny. But it also implies government backing. Whether that was the intent or not remains hazy.
Fitch recently noted in an update about the securities industry that, "Ratings of major firms are further underpinned by government support in the event of need given their G-SIFI status."
This assumption has direct financial consequences. The costs of funding for banks on this list remain significantly lower thanks to the conventional view that the banks will be bailed out if they run into trouble.
"In theory, this should be countered by increased capital charges, which will be phased in between 2016 and 2019," notes Alphaville.
"But many think this is irrelevant. Some of the G-SIFI banks are likely to be subject to local regulatory regimes that are stricter than Basel III guidelines anyway. Switzerland being the most obvious example."
Banks deploy balance sheets less aggressively