Five Major Banks and Financial Holdings Selected as Systemically Important Banks... Must Submit Advance Directives

An Additional 1 Percentage Point Capital Reserve Required Next Year

[Asia Economy Reporter Jin-ho Kim] Shinhan, KB, Hana, Woori, NongHyup Financial Group, along with Shinhan, Kookmin, Woori, Hana, and NongHyup Banks, have been selected as domestic systemically important banks and bank holding companies (D-SIB) for the next year. These financial institutions must create a "living will" containing a resolution plan to prepare for crisis situations such as insolvency and submit it to financial authorities by October.

The Financial Services Commission announced on the 13th, during a regular meeting, that these 10 banks and bank holding companies were selected as D-SIBs. Accordingly, these financial institutions must submit their own resolution plans to the Financial Supervisory Service within three months from the date of notification.

This evaluation targeted bank holding companies, banks, and foreign bank branches (with total assets of 5 trillion KRW or more as of the end of fiscal year 2020). The evaluation criteria included five categories and 11 indicators: ▲size ▲interconnectedness ▲substitutability ▲complexity ▲domestic specific factors.

The selection of D-SIBs is a measure based on the Basel Committee on Banking Supervision (BCBS) recommendations. The Basel Committee has been promoting enhanced supervision of large banks and bank holding companies to address systemic risks posed by large financial institutions. Accordingly, the Financial Stability Board (FSB) selects global systemically important banks (G-SIB) and imposes additional capital requirements ranging from 1% to 3.5% based on their importance.

Following these Basel Committee recommendations, the Financial Services Commission has selected D-SIBs since 2016 and required them to accumulate additional capital. The D-SIB banks and bank holding companies selected this time will be subject to a 1% additional capital requirement next year.

They must maintain their total capital ratio at 11.5% or higher, which includes the basic capital requirement (8.0%), the capital conservation buffer (2.5%) that is always imposed on all banks, and the D-SIB additional capital (1.0%).

Starting this year, the Financial Services Commission also designated systemically important banks and bank holding companies as Domestic Systemically Important Financial Institutions (D-SIFI). These institutions are subject to the resolution and recovery plan system under the Financial Industry Structure Improvement Act. The financial institutions selected as D-SIFI are the same 10 banks and bank holding companies designated as D-SIB.

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