What is a G-SIB? “Too big to fail”, explained
What a G-SIB (global systemically important bank) is, how the FSB chooses them, capital surcharge buckets, TLAC, and what “too big to fail” means.
Take office →A G-SIB (Global Systemically Important Bank) is a bank so large, interconnected and complex that its disorderly failure would damage the global financial system. After 2008, regulators decided these banks must carry extra capital and be resolvable without taxpayer bailouts.
Who decides?
The Financial Stability Board (FSB) publishes the G-SIB list every November, using a methodology set by the Basel Committee on Banking Supervision. The list has hovered around 30 banks: the largest US, European, Chinese and Japanese banking groups.
How banks are scored
- Size: total exposures.
- Interconnectedness: how much the bank borrows from and lends to other financial firms.
- Substitutability: how hard its payment, custody and underwriting services would be to replace.
- Complexity: derivatives, trading assets, hard-to-value (“level 3”) assets.
- Cross-jurisdictional activity: how global the bank is.
The capital surcharge buckets
| Bucket | Extra CET1 required |
|---|---|
| 1 | 1.0% |
| 2 | 1.5% |
| 3 | 2.0% |
| 4 | 2.5% |
| 5 (kept empty as a deterrent) | 3.5% |
The surcharge sits on top of the normal Basel III requirements, so G-SIBs hold noticeably more capital than other banks.
TLAC: bail-in instead of bail-out
G-SIBs must also hold Total Loss-Absorbing Capacity (TLAC) of at least 18% of risk-weighted assets and 6.75% of leverage exposure: equity plus debt that can be written down or converted into equity if the bank fails. The idea: creditors, not taxpayers, recapitalise a failing giant. In Europe the similar requirement is called MREL.
Is being a G-SIB good or bad?
Both. The label is a mark of global scale, and a permanent cost: higher capital, more supervision, resolution planning and political attention. Some banks actively manage their scores to stay out of higher buckets.
Frequently asked questions
How many G-SIBs are there?
Around 30. The Financial Stability Board updates the list every November; recent lists have contained 29–30 banks.
What is the difference between a G-SIB and a D-SIB?
A G-SIB is systemically important globally; a D-SIB (domestic systemically important bank) matters for one country's financial system and faces national capital buffers instead.
What does too big to fail mean?
It describes banks whose failure would cause so much damage that governments would feel forced to rescue them. G-SIB rules aim to end this by requiring more capital and bail-in debt.
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