Back in the summer we wrote about an IMF report that flagged Deutsche Bank as the "most important net contributor to systemic risks" (see "'Deutsche Bank Poses The Greatest Risk To The Global Financial System': IMF"). Those who read our site frequently were likely not terribly surprised by the IMF's conclusion.
Among the G-SIBs, Deutsche Bank appears to be the most important net contributor to systemic risks, followed by HSBC and Credit Suisse. In turn, Commerzbank, while an important player in Germany, does not appear to be a contributor to systemic risks globally. In general, Commerzbank tends to be the recipient of inward spillover from U.S. and European G-SIBs. The relative importance of Deutsche Bank underscores the importance of risk management, intense supervision of G-SIBs and the close monitoring of their cross-border exposures, as well as rapidly completing capacity to implement the new resolution regime.
That said, we suspect the latest ranking of global systemically important banks (G-SIBs) by the Financial Stability Board may be a bit more surprising to our readers, among others, as it features two of America's largest banks right at the very top.
Of course, Citigroup was quick to release a statement saying that its rise in the FSB list “does not drive a binding capital constraint” on the bank, and that it’s already subject to a higher 3% surcharge imposed by the U.S. Federal Reserve. While that may be true, any relative risk ranking that finds Citibank and JP Morgan more risky that Deutsche Bank has to be concerning to U.S. regulators.
The Financial Stability Board was established after the global financial crisis in 2009 by the Heads of State of the G20 with a mandate to "promote financial stability." As such, the board ranks the 30 most systemically important financial institutions each year and assigns them to "capital surcharge" risk buckets based on a variety of risk measures. In this year's rankings, Citigroup, BofA and Wells Fargo were the biggest losers and all face higher capital surcharges as a result. Meanwhile, London-based banks HSBC and Barclays all fared better in 2016's rankings. Per Bloomberg:
Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. all face higher capital surcharges after they rose in the Financial Stability Board’s latest ranking of the most systemically important banks in the world. Meanwhile, New York-based Morgan Stanley and London-based lenders HSBC Holdings Plc and Barclays Plc saw their buffer levels fall, the FSB said in a statement on Monday.
HSBC’s capital surcharge falls to 2 percent of risk-weighted assets from 2.5 percent, while Citigroup’s buffer rises to 2.5 percent from 2 percent, the FSB said. Barclays surcharge falls to 1.5 percent from 2 percent; Wells Fargo rises to 1.5 percent from 1 percent; and the Industrial and Commercial Bank of China surcharge rises to 1.5 percent from 1 percent.
The drop in HSBC’s surcharge is positive for the lender and “further enhances the capital return prospects” in the long term, Citigroup analysts said in a note.
Of course, all of this news was promptly dismissed by wall street as investors haven't seen a bank stock they didn't want to buy since election night two weeks ago.