Category (weighting)
Individual Indicator
Indicator weighting
Cross-jurisdictional activity (20%)
Cross-jurisdictional claims
10%
Cross-jurisdictional liabilities
10%
Size (20%)
Total exposures as defined for use
in the Basel III leverage ratio
20%
Inter-connectedness (20%)
Intra-financial system assets
6.67%
Intra-financial system liabilities
6.67%
Wholesale funding ratio
6.67%
Substitutability (20%)
Assets under custody
6.67%
Payments cleared and settled
through payment systems
6.67%
Values of underwritten
transactions in debt and equity
markets
6.67%
Complexity (20%)
OTC derivatives notional value
6.67%
Level 3 assets
6.67%
Trading book value and available
for sale value
6.67%
Source: BIS (2011)
Broadly speaking, the motivations for the categories of indicators are as follows. Cross-
jurisdictional activity is intended to measure the importance of a bank outside of the jurisdiction in
which it is headquartered. This captures an aspect of its international systemic importance.
Annex
7
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Literature on risk measures
189
Size captures another aspect of systemic importance. That is, all else equal, the larger the share of
activity accounted for by a given bank, the more difficult it may be for other banks to take this
bank's activity if it fails. The failure of larger banks may also have an impact on financial stability
through their influence on confidence.
Similar to the rational for cross-jurisdictional importance, the more inter-connected a given bank is
to others, the more likely and costly it is for its failure to transmit through to the balance sheets of
other banks. For instance, if a given bank lends more to other banks, holds securities of other
banks, is engaged in repurchase agreements with other banks, etc.
Substitutability relates to the ability to replace the services a given bank provides in the event of
failure and is captured through: assets under custody, payments cleared and settled through
payment systems and values of underwritten transactions in debt and equity markets.
The complexity of an institution is expected to mean it is more systemically important, all else
equal, due to the uncertainty resulting from the cost and time needed to uncover its impact on
financial stability.
While this methodology is more basic than others covered in this section, its key merit is that it
captures many different aspects of systemic importance. The list of G-SIFIs resulting from an
application of this methodology is shown in Annex 6.
Annex
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