Last update: 01/12/2023

Santander's listing as a Global Systemically Important Bank speaks to its influence in the international financial system.

Santander is the only Spanish bank to feature on the list of 29 global systemically important banks (G-SIBs) for 2023. Since 2011, the Financial Stability Board (FSB), Basel Committee and national authorities have revised the list each year.

Systemic bank status carries additional capital requirements for banks to cover the risk attributed to their size in the financial system. The list of G-SIBs is divided into categories based on the higher loss absorbency of common capital requirement. 

Why was the G-SIB list created?

Because of the financial crisis that began in 2007, so many banks went bankrupt or faced financial decline that the public sector had to step in to restore financial stability — at taxpayers’ expense.  

It became clear that additional measures were needed to reduce both the likelihood and the severity of financial institutions going broke. The Basel Committee on Banking Supervision (BCBS) adopted reforms to make banks and the banking system in general more resilient. It introduced new policies for systemically important institutions so that their problems wouldn't spill over to other banks, and they wouldn't likely take excessive risk, subvert market discipline in hopes of a government bailout and, in consequence, distort the market and require a bailout in the future. 

Why is Santander a "G-SIB"?

The Basel Committee came up with a methodology to identify G-SIBs based on equally-weighted categories:

  • Size (20%):

    • The larger banks are, the more difficult it is for other banks to quickly replace their activities. Therefore, it's more likely that the distress or failure of such large banks would disrupt financial markets.
    • A bank's size is determined by measuring total exposures in its Basel III leverage ratio. 
  • Cross-jurisdictional (20%): 

    • The greater a bank’s global reach is, the more difficult it will be to coordinate its resolution and the more widespread the spillover effects will be from its failure.
    • The bank’s cross-jurisdictional claims and liabilities outside its home (headquarter) jurisdiction are used to measure this category.  
  • Interconnectedness (20%):

    • Financial distress at one bank can materially increase the likelihood of distress at others because of their network of contractual obligations
    • Interconnectivity is determined by measuring intra-financial system assets, intra-financial system liabilities, and securities outstanding
  • Substitutability (20%):

    • When a bank plays a major role in a market's infrastructure, the less replaceable its services are, and the greater the impact will be on the market if it experiences distress or failure.
    • Substitutability is determined by measuring a bank's assets under custody, payments activity and underwritten transactions in debt and equity markets.
  • Complexity (20%):

    • The more complex a bank is, the longer it will take and the more it will cost to resolve it.
    • Two indicators used to measure complexity are cross-jurisdictional claims and liabilities and operating structure.

The highest scoring banks are classified as G-SIBs. 

Large security network

Given G-SIBs' weight in the financial system, they must meet extra requirements to reduce:

  • the likelihood of bankruptcy by increasing their loss-absorbing capacity; and 
  • the scope and impact of bankruptcy by improving their viability and resolution frameworks.

G-SIBs are subject to tighter supervision. They also have additional capital and loss-absorbing requirements and must undergo a resolvability review by international authorities. This review, coupled with the resolution plan, protects G-SIBs' critical functions and customers in times of crisis.

That's why Santander must abide by more stringent rules than non-systemic banks and is better equipped to cope with crisis.  

The 1% league

G-SIBs' additional capital requirements can be between 1% and 2.5% of CET1 capital depending on their level of systemic importance. 

Santander finds itself at the lower end of this range. It is equivalent to a capital buffer of 1% of our total risk exposure in 2023. 

You might like