Capital Regulation of G-SIBS: Does One Size Fit All ?

Abstract

The ongoing global financial crisis has enhanced the interest in the effective regulation and supervision of internationally active and large financial institutions, named as global systematically important financial institutions or banks (G-SIFIs or G-SIBs). The literature on G-SIBs has started to develop, although it is still infrequent. In this paper, we address a new question: is the quite uniform Basel Committee on Banking Supervision’s (BCBS) methodology adequate to regulate a diverse group of institutions? We use a panel data set covering 31 G-SIBs and the time range of 2006-2012 that demonstrates remarkable differences among the analyzed institutions. We find for example, that the relationships between risk and profitability differ strongly between ‘globally’ and ‘not so globally’ acting G-SIBs, meaning that the ‘one size fits all’ solution may be questioned.

Keywords: G-SIB, regulation, bank capital, risk

JEL Classification: G21, G15