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Systemically Important Authorized Institutions (SIBs)

Systemically Important Authorized Institutions (SIBs)

SIBs are banks whose impact, in the event of distress or failure, could cause significant disruption to the financial system and ultimately, the broader economy. In recognition of the additional risks posed by SIBs, they are subject to specifically tailored regulatory and supervisory measures, including capital surcharges in the form of higher loss absorbency (HLA) capital buffers; more intensive supervision (particularly in areas such as risk management and governance) and prioritised recovery and resolution planning.

The Basel Committee on Banking Supervision (Basel Committee) issued a framework for the identification of global systemically important banks (G-SIBs) and the determination of the corresponding HLA requirements in July 2013. This framework has been used by the Basel Committee and the Financial Stability Board (FSB) to generate a list of G-SIBs. The latest list was issued by the FSB in November 2016 and identified 30 G-SIBs.

For domestic systemically important banks (D-SIBs), the Basel Committee issued a principles-based framework in October 2012. National authorities in individual jurisdictions are responsible for establishing a methodology for assessing the degree to which banks are systemically important locally, and calibrating the level of an appropriate HLA requirement, as well as for applying other policy/supervisory measures appropriate to address the risks posed by a D-SIB. To implement the Basel Committee standards locally, the Monetary Authority is empowered under the Banking (Capital) Rules to designate AIs incorporated in Hong Kong as D-SIBs or G-SIBs and to determine the associated HLA requirements.

Currently there are no G-SIBs headquartered and incorporated in Hong Kong.

The D-SIB framework in Hong Kong is based on the four assessment criteria drawn from the Basel Committee’s D-SIB framework, namely size, interconnectedness, substitutability and complexity. The identification of D-SIBs locally consists of a two-step process. The first step is to draw up a preliminary indicative list of D-SIBs based on the quantitative scores calculated using the factors and a set of indicators. The second step involves the exercise of supervisory judgement to serve as a complement to the quantitative assessment process.

HLA requirements must be met with Common Equity Tier 1 capital. Depending on the systemic importance of the AI designated as a D-SIB or G-SIB, the HLA requirement ranges from 1% to 3.5% of an AI’s total risk-weighted assets (as calculated under the Banking (Capital) Rules).

The HLA requirement, together with the Countercyclical Capital Buffer (if applicable), takes effect as an extension of the Basel III Capital Conservation Buffer. Accordingly, if and when a D-SIB’s Common Equity Tier 1 capital ratio falls within the extended buffer range, the D-SIB will be subject to restrictions on the discretionary distributions it may make (including by way of dividend, share buyback, discretionary coupon payments on capital instruments and discretionary bonus payments to staff) according to a specified scale as set out in section 3H(1) of the Banking (Capital) Rules. The effect of this is that D-SIBs will be required to retain earnings in order to bolster their regulatory capital.

Implementation in Hong Kong

Supervisory Policy Manual module CA-B-2: Systemically Important Banks (February 2015)

Consultation on a Framework for Systemically Important Banks in Hong Kong (March 2014)

Documents issued by the Basel Committee on Banking Supervision and Financial Stability Board relating to SIBs

2016 list of global systemically important banks (November 2016)

2015 update of list of global systemically important banks (November 2015)

2014 update of list of global systemically important banks (November 2014)

Global systemically important banks: updated assessment methodology and the higher loss absorbency requirement (July 2013)

A framework for dealing with domestic systemically important banks (October 2012)

SIB announcement in Hong Kong

30 December 2016 Press release
31 December 2015 Press release
16 March 2015  Press release


Last revision date: 10 January 2017
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