BSP enhances methods to identify ‘too big to fail’ banks
ByBLy
TChHiIpPoOnNgGiIaAnN
he Bangko Sentral ng Pilipinas (BSP) has amended the guidelines that will identify domestically systemic important banks (DSIBs) and expanded to nine categories in naming who these “too big too fail” banks are.
DSIBs are “banks whose distress or disorderly failure would cause significant disruptions to the wider financial system and economy.” The BSP has never released the list of the DSIBs, unlike some central banks in the region, but as early as 2015, they already classify banks as DSIBs or not based on its size, interconnectedness, complexity and market importance.
Based on BSP Circular No. 1051, signed by BSP Governor Benjamin E. Diokno last Friday, September 27, they have improved the DSIBs framework or the guidelines for dealing with DSIBs and these changes “reflect enhancements in the assessment methodology of DSIBs.”
In the circular memo, Diokno said the nine DSIBs indicators that will identify who these banks are have been enhanced, and that these indicators are the factors or criteria which make a bank.
The categories such as the size and interconnectedness of a bank are given scores and the results serve as measure in determining a bank’s systemic importance in the Philippines. The other categories are substitutability/financial institution infrastructure and complexity.
As an enhancement, individual indicators will also be allocated weightings such as: Total exposures as defined for use in the Basel III Leverage Ratio; intra-financial system assets; intra-financial system liabilities; securities outstanding; assets under custody; payments activity; and underwritten transactions in debt and equity markets. Under complexity category, the BSP will assess a bank’s derivatives and financial assets.
According to the circular, banks designated as DSlBs will be grouped into different categories of systemic importance “using cluster analysis based on the overall scores produced by the indicator-based measurement approach.”