D-Systemically Important
Banks (D-SIBs):
Systemic risk:
Systemic risk can be defined as the risk associated with the collapse or failure of a company, financial institution or an entire economy.
D-Systemically Important Banks (D-SIBs):
- Some Commercial Banks, due to their size, cross-jurisdictional activities, complexity, lack of substitutability and interconnectedness, become Systemically important for the Economy.
- D-SIBs are perceived as banks that are ‘Too Big To Fail (TBTF)’.
- In case of failure of D-SIB, overall economic activities are disrupted significantly
- Because of their TBTF nature, Government support is sought for these banks at the time of distress.
- D-SIBs are subjected to additional policy measures to deal with the systemic risks and moral hazard issues posed by them.
Depending upon their systemic importance scores , banks are categorised into :
- Five different Buckets and
- Required to have additional Common Equity Tier 1 Capital (CET1) requirements ranging from 0.20% to 0.80% of Risk Weighted Assets (RWA).
The D-SIBs banks are classified into 5 buckets.
- Bucket 1, Bucket 2, Bucket 3, Bucket 4 and Bucket 5.
- With Bucket 5 being the most important followed by rest in decreasing order.
- State Bank of India is in Bucket 4, while HDFC Bank is in Bucket 2 ICICI Bank is in Bucket 1.
CET1 is the highest quality of regulatory capital, as it absorbs losses immediately when they occur.
It is a capital measure introduced in 2014 globally as a precautionary means to protect the economy from a financial crisis.
