Requiring additional capital comes at a cost – most importantly in decreased lending ability which constrains future economic growth. We encourage the Financial Stability Board (FSB) to allow for a five-year phase-in period for these new requirements, as well as optionality and discretion for domestic regulators.
A G-SIB is defined as a financial institution whose distress or disorderly failure, because of its size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity.
Capital Buffer Implications
Those institutions deemed as systemically important must hold additional loss absorption capacity tailored to the impact of their default, rising from 1% to 2.5% of risk-weighted assets (with an empty bucket of 3.5% to discourage further systemicness), to be met with common equity.