OFR_2016_Financial-Stability-Report

Systemic Risks Remain Concentrated
Among U.S. G-SIBs
Internationally, bank regulators now impose a capital
surcharge on G-SIBs based on their systemic importance.
The surcharge is calculated using a methodology
set by the Basel Committee on Banking Supervision.
In 2016, the OFR introduced an interactive tool for
visualizing G-SIBs’ systemic importance data using that
methodology (see OFR, 2016a).
Despite significant reforms, the eight U.S. G-SIBs
remain large, complex, and interconnected enough to
pose potential risks to the U.S. financial system (see
Loudis and Allahrakha, 2016). The eight companies
account for nearly three-quarters of total U.S. bank
holding company assets. They also remain deeply connected
to the rest of the financial system (see Figure 60).
The Basel Committee methodology measures banks’
complexity in part by looking at data on notional derivatives
positions. These data reflect the nominal value of
underlying derivatives contracts. They have been volatile
since 2012 but remain highly concentrated among
the five largest banks (see Figure 61). As with OFR
findings on insurance (see Section 2.5), OFR analysis
suggests higher derivatives exposures for banks are associated
with greater systemic risk (see Interest Rates and
Derivatives Exposures Drive Banks’ Systemic Risk
Indicators).
Substitutability is also a concern in determining
whether a bank is systemically important. The Basel
Committee’s measure for substitutability will not
reflect recent changes in the provision of settlement services
for government securities and related repos in the
United States. JPMorgan Chase announced in July that
it will close its government securities settlement business
by the end of 2017. This decision could concentrate
such activities in Bank of New York Mellon (BNY
Mellon) (see Burne, 2016). Concentration of these
activities could raise financial stability concerns. A
failure of, or loss of confidence in, a clearing bank may
cause broad market disruptions. However, even if BNY
Mellon’s substitutability metrics were to rise because of
JPMorgan’s exit, it would not be captured in the bank’s
Figure 60. U.S. G-SIB Securities Outstanding
($ billions)
Securities outstanding, a measure of interconnectedness,
have been high since 2012
JPMorgan
Chase
Wells Fargo
Citigroup
Bank of
America
Goldman Sachs
Morgan Stanley
State Street
Bank of New
York Mellon
2016 Q2
2015
2014
2013
2012
0 200 400 600 800
Note: G-SIB stands for global systemically important bank. Securities
outstanding include all debt and equity securities issued by
the company.
Sources: Federal Reserve Form Y-15, OFR analysis
Figure 61. U.S. G-SIB Notional Amount of
Derivatives Positions ($ trillions)
Derivatives holdings, a measure of complexity, have been
high since 2012
JPMorgan
Chase
Citigroup
Goldman Sachs
Bank of
America
Morgan Stanley
Wells Fargo
State Street
Bank of
New York
Mellon
2016 Q2
2015
2014
2013
2012
0 20 40 60 80
Note: G-SIB stands for global systemically important bank.
Sources: Federal Reserve Form Y-15, OFR analysis
Key Threats to Financial Stability 69