Today, the Systemic Risk Council* released a research paper by Richard Herring and Jacopo Carmassi examining the complexity of the 29 institutions that have been designated as Global Systemically Important Banks (G-SIBs) by the Financial Stability Board in November 2013.
Links to the full paper and executive summary are below.
The authors found that in 2013 G-SIBs had:
- an average of $1.587 trillion in assets (with a high of $3.100)
- an average of 1,002 majority-owned subsidiaries (with a high of 2,460), with nearly half the subsidiaries classified as non-financial
- 2.6 times more subsidiaries than non-financial institutions with comparable market capitalizations
- 60% of subsidiaries located outside the headquarters country (high of 95%)
- at least one subsidiary in 44 different countries (a high of 95)
- 12% of subsidiaries located in off-shore centers (with a high of 28%)
“The complex structure and opaque connections among G-SIBs impeded oversight and market discipline before the crisis and greatly complicated management and resolution after the crisis”, said Richard Herring. “To enhance market discipline and ensure the credibility of plans to resolve G-SIBs without resort to taxpayer bailouts, greater progress is needed to simplify and rationalize G-SIBs’ organizational structures and improve transparency and market understanding of those structures.”
The paper also includes several recommendations to regulators and banks including:
- The use of consistent definitions and terminology in bank disclosures of organizational structure, including such key terms as “material entity.” The paper found that basic information can vary widely depending on reporting venue. For instance, Federal Reserve Reports show that in 2013 Citigroup had 1,883 subsidiaries, while Citi’s 10-K filing with the SEC shows 184 subsidiaries;
- Public disclosure of information on organizational structure in readily searchable formats;
- Disclosure of key elements of living wills to enable the market to better evaluate their credibility;
- Reconsideration of tax and regulatory policies with an emphasis on how they impact organizational complexity and impede orderly resolution.
Download the full paper below:
Download an executive summary below:
*Support for this paper was provided by the Systemic Risk Council, an independent and non-partisan council formed to monitor and encourage regulatory reform of US capital markets focused on systemic risk. The views expressed in the paper are those of the authors and do not necessarily reflect the views of the Systemic Risk Council, its members, or its supporting organizations.
Richard J. Herring is Jacob Safra Professor of International Banking and Professor of Finance at The Wharton School, University of Pennsylvania, where he is also founding director of the Wharton Financial Institutions Center.
Jacopo Carmassi is a research fellow at the LUISS Guido Carli University in Rome, Italy, and a research fellow of the Wharton Financial Institutions Center, University of Pennsylvania.