Earlier today, the Financial Stability Board (the “FSB”) approved and the Basel Committee on Banking Supervision (the “Basel Committee”) published a new set of regulatory guidelines for domestically systemically important banks (“D-SIBs”). This framework follows the publication almost a year ago of a process for identifying and supervising globally systemically important banks (“G-SIBs”). Today’s document similarly provides for enhanced regulation of D-SIBs, although it appears to be somewhat less stringent and prescriptive than that for G-SIBs. For example, the D-SIB Framework calls for an additional loss absorbency requirement but does not offer any specifics as the G-SIB Framework does.
A D-SIB is a banking organization whose failure or impairment would have external effects that would damage the real economy. The purpose of the D-SIB Framework is to limit those effects, as well as the likelihood of failure or impairment, through better supervision, risk management, and, if necessary, higher capital requirements.
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