New York - S&P Capital IQ and SNL, a business unit of McGraw Hill Financial and a provider of research, analytics and data, has released new analysis showing that the world's 30 most systemically risky banks have risk exposure that amounts to 76.7% of worldwide gross domestic product. Sources of the data vary and are noted in detail in the footnotes of the report linked here.
The ratio of total exposures to GDP is not an inherently risky number, but it does demonstrate how concentrated financial risk has become, especially considering the list of 30 G-SIBs is top-heavy. SNL's report shows that the world's 30 G-SIBs have $59.759 trillion in exposures; the top 20 banks account for 83% of that total.
Further, total exposures among G-SIBs are particularly concentrated geographically. Just five countries are home to the headquarters of 23 G-SIBs with total exposures of $50.203 trillion, or 64.5% of world GDP.
Among the five nations with at least three G-SIBs - China, France, Japan, the United Kingdom and the United States - France and the U.K. have the highest G-SIB exposure-to-GDP ratios at 287.8% and 273.7%, respectively. A fourth Chinese bank joined the G-SIB list this year, raising the country's ratio to 121.3%. Japan had a similar ratio at 134.9%. The ratio in the U.S. was 86.4%, despite the fact that the country has by far the most G-SIBs, at eight. Comparing individual countries can be somewhat complicated, as European banks tend to do more business internationally than U.S. or Asian banks. The four G-SIBs with the highest scores in the cross-jurisdictional activity category are all Europe-based.
For the eight U.S. G-SIBs in aggregate, total exposures increased more than 2% year over year in 2014. However, that rate of growth was lower than the nation's GDP growth rate, meaning the exposures-to-GDP ratio declined to 86.4% in 2014 from 88.1% in 2013.
Methodology: As part of financial regulatory reform following the crisis, the world's 75 largest banks submit data to the Financial Stability Board. This group of international regulators uses the data to calculate total systemic risk scores. Banks with higher scores earn a global systemically important designation, which subjects them to more stringent capital ratios under Basel III.
Five equally-weighted categories make up a bank's G-SIB score: size, interconnectedness, substitutability, complexity and cross-jurisdictional activity. For the size component, a single data point called total exposures determines the bank's score. Total exposures include on-balance sheet items, such as total assets, as well as off-balance sheet items, like derivatives or counterparty risk. Measuring bank size by total assets alone can be problematic due to differing accounting standards.