Royal Bank joins list of institutions ‘too big to fail’

TORONTO — The Royal Bank of Canada is the first Canadian lender to be added to the Financial Stability Board’s list of global systemically important banks, which are deemed too big to fail.

The FSB, which co-ordinates the work of national financial authorities and international standard-setting bodies, added RBC as it removed French bank Groupe BPCE, keeping the total number of institutions on the list at 30.

“This designation reflects the size and scale of RBC’s global operations,” RBC said in a statement Tuesday.

Banks that receive this global systematically important (G-SIBs) designation face increased regulatory expectations designed to reduce the likelihood of a failure — and the ripple effects on the global economy. That includes a higher capital buffer and higher supervisory expectations.

RBC is Canada’s largest bank based on its stock market value. However, because it is one of the smallest banks on the global list, RBC was placed into the lowest of five categories or “buckets” with the least onerous requirements to set aside additional capital to protect against unexpected losses.

RBC and 16 other banks in this G-SIB category are required to hold an additional one per cent of common equity as a percentage of its risk-weighted assets, on top of the minimum capital levels outlined by the Basel Committee on Banking Supervision.

RBC said it already meets the requirement of a one per cent capital buffer and “does not expect any impact to its capital position with this designation.”

Eight banks, including Goldman Sachs, are subject to a 1.5 per cent buffer, and four banks including HSBC must hold two per cent. Only JP Morgan Chase must hold a 2.5 per cent buffer, and no bank is in the highest bucket with a 3.5 per cent requirement.

The Office of the Superintendent of Financial Institutions said in a statement RBC is already subject to its framework for domestic systematically important banks (D-SIBs), and “therefore is well positioned to meet the G-SIB requirements starting in January 2019.”

Canada’s banking regulator in 2013 named the country’s six largest banks, including RBC, as D-SIBs. In turn, the banks were subject to additional requirements such as a capital surcharge, enhanced supervision, and increased disclosure, which OSFI said is generally consistent with the G-SIB requirements.

Shares of RBC were flat, closing at $100.92 in Toronto.