Global: FSB Adjusts Capital Requirements for Bank of America and Crédit Agricole in 2024 Update

The Financial Stability Board (FSB) has announced adjustments to the capital requirements for two global systemically important banks (G-SIBs) in its 2024 update. The changes reflect shifts in the banks’ underlying activities and risk profiles, as assessed under the Basel Committee on Banking Supervision (BCBS) methodology.

Key Changes in the 2024 G-SIB Buckets

According to the FSB’s latest list, Groupe Crédit Agricole has been moved from bucket 1 to bucket 2, signifying a higher capital requirement. In contrast, Bank of America has been downgraded from bucket 3 to bucket 2, which entails a reduced capital buffer requirement.

These adjustments are based on the banks’ 2023 financial and operational data and will take effect at different times:

• Higher Requirements: Crédit Agricole’s updated capital buffer requirements will apply starting January 1, 2026.
• Lower Requirements: Bank of America’s reduced capital buffer requirement is effective immediately.

The Annual G-SIB Assessment

The FSB’s annual list is a critical component of global financial stability, identifying banks whose failure could have widespread implications for the international financial system. For 2024, the G-SIB list remains consistent in size, with no additions or removals, maintaining the total at 29 institutions.

The categorization into buckets determines the additional capital buffers these banks must hold to mitigate systemic risks. These buckets are based on criteria such as size, interconnectedness, substitutability, cross-jurisdictional activity, and complexity.

This year’s changes are primarily attributed to shifts in the complexity category, underscoring the dynamic nature of global banking operations.

G-SIB Requirements

Banks classified as G-SIBs are subject to enhanced regulatory standards to reduce systemic risks, including:

• Higher Capital Buffers: To absorb potential losses and strengthen financial resilience.
• Total Loss-Absorbing Capacity (TLAC): Ensuring sufficient loss-absorbing instruments are available in the event of financial distress.
• Enhanced Supervisory Expectations: Covering risk management, data aggregation, governance, and internal controls.
• Resolvability Requirements: Facilitating an orderly resolution in case of failure to minimize systemic disruptions.

BCBS and Additional Insights

The Basel Committee on Banking Supervision (BCBS) complements the FSB’s findings by providing additional details on the G-SIB assessment methodology. These insights aim to enhance transparency and help stakeholders understand the underlying criteria for the G-SIB classification.

Shadow Banking Under Scrutiny

In a separate regulatory focus, the FSB has emphasized the need for increased oversight of the shadow banking sector. In a July 2024 letter to finance ministers and central bank governors, FSB Chair Klaas Knot highlighted the risks posed by non-bank financial institutions, citing incidents of market stress and liquidity strains that could exacerbate systemic vulnerabilities.

Implications of the 2024 G-SIB Update

The FSB’s revisions to the G-SIB list signal its commitment to adapting regulatory frameworks in line with evolving financial risks. By ensuring that banks meet capital requirements commensurate with their systemic importance, the FSB aims to safeguard global financial stability while addressing emerging challenges in the banking and non-banking sectors.