The Annual Report, published in a new format for the first time this year, includes a foreword by FSB Chair Andrew Bailey, who is also the Governor of the Bank of England. He said that in an increasingly fragmented and unpredictable world, where multilateralism is being tested, FSB members continued to find common ground and demonstrated commitment to addressing shared challenges, giving reason to be optimistic.

The FSB Chair notes that “the shocks of recent years have not undermined financial stability,” a testament to the reforms put in place since the global financial crisis.

Andrew Bailey also noted that the Financial Stability Board must continue to evolve to be fit for purpose in an ever-evolving world, a theme that will continue to guide the international body’s work. Also, the second phase of the Financial Stability Board strategic review of implementation will further address how to identify the causes of a slowdown in G20 reform implementation and how to encourage implementation more effectively.

As outlined in the body of the Annual Report, in 2025, the FSB, through its membership and in collaboration with international standard-setting bodies, continued to strengthen financial systems, enhance the resilience of global financial markets, and improve implementation of policy recommendations across industries and jurisdictions. Several longstanding vulnerabilities in the financial system during its ongoing surveillance, including rising sovereign debt levels and the rapid growth of Non-Banking Financial Institutions (NBFI).

In response, the Financial Stability Board completed work to address the financial stability risks related to leverage in NBFI and created the “Nonbank Data Task Force” to address data issues that prevent authorities from effectively assessing vulnerabilities in NBFI.

The FSB also reviewed the progress in implementing the 2023 global regulatory framework for crypto-assets and stablecoins, calling on authorities to address gaps and inconsistencies that could pose risks to financial stability. Regarding operational vulnerabilities, the FSB finalised an operational incident reporting exchange format.

The Financial Stability Board has emerged as the global standard setter for the resolution of financial institutions, and in 2025, it continued its work on this front to support authorities’ preparedness to respond to failures, including the production of policy guidance and enhancements to operational planning.

Image Credits: Bank of England

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Such a change in ranking would lead to additional capital requirements for the banks in question as an insurance against failure and the subsequent ripple effects through the global economy. But, in this case, a Citigroup spokesperson commented that they are already subject to high capital requirements laid down by the Federal Reserve: “The GSIB measure announced this morning by the FSB does not have an impact on any of Citi’s binding regulatory metrics.”

Capital buffer
The Basel-based FSB will, from January 2018, require Citigroup Inc. to hold a 2.5 percent capital buffer in comparison to the 2 percent called for in the previous year while Bank of America is now required to keep 2 percent compared to last year’s 1.5 percent. Wells Fargo’s capital buffer level went up to 1.5 percent from 1 percent, which was the level required last year.

Morgan Stanley, Barclays and HSBC lie on the other side of the spectrum in this regard, having been adjudged to be less risky to global financial stability as compared to last year. These banks have managed to better their position largely by selling off part of their riskier businesses or reducing the size of some of them.

The case of Deutsche Bank too is of note as the entity had been named the greatest systemic risk to international financial stability last year. With a capital requirement of 2 percent, it remains in its middle-tier position.

The basis of FSB’s decision
The board’s decision was based on ‘data quality improvements, changes in underlying activity and the use of supervisory judgment’, going by a press release. According to the Financial Times, ‘people familiar with the move’ said the decision came on the back of a surge in the value of the US dollar, which then resulted in a heightening of American banks’ risk profile.

The Trump effect
It is also of note that the higher risk rankings came shortly after Donald’s Trump’s election victory. Trump has promised several times to do away with Dodd-Frank, a law that seeks to mitigate the systemic risks – those that set off the 2008 financial crisis – posed by America’s large banks.

A note on Trump’s website reads: “The Dodd-Frank economy does not work for working people. Bureaucratic red tape and Washington mandates are not the answer. The Financial Services Policy Implementation team will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.”

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July 24, 2014: The Reserve Bank of India (RBI) has decided to designate up to six banks as Domestic Systemically Important Banks (D-SIBs) to reduce the risk of collapse of the financial system in the event of a crisis. These banks will be expected to have additional Common Equity Tier 1 capital ranging from 0.20% to 0.80% of risk weighted assets. They will be subjected to differentiated supervisory requirements and higher intensity of supervision based on the risks they pose to the financial system.

In a release, the RBI said that, during the recent global financial crisis, problems faced by certain large and highly interconnected financial institutions hampered the orderly functioning of the financial system, which in turn, negatively impacted the economy. Government intervention was considered necessary in many jurisdictions to ensure financial stability. The cost of public sector intervention necessitated that future regulatory policies should aim at reducing the probability of failure of Systemically Important Banks (SIBs) and the impact of the failure of these banks.

In October 2010, the Financial Stability Board (FSB) recommended that all member countries needed to have in place a framework to reduce risks attributable to Systemically Important Financial Institutions (SIFIs) in their jurisdictions. The Basel Committee on Banking Supervision (BCBS) came out with a framework in November 2011 for identifying the Global Systemically Important Banks (G-SIBs) and the magnitude of additional loss absorbency capital requirements applicable to these G-SIBs. The BCBS further required all member countries to have a regulatory framework to deal with Domestic Systemically Important Banks (D-SIBs).

The framework, released on July 22, discusses the methodology to be adopted by RBI for identifying D-SIBs and additional regulatory/supervisory policies which these banks would be subjected to. The assessment methodology adopted by RBI is primarily based on the BCBS methodology for identifying the G-SIBs with suitable modifications to capture domestic importance of a bank.

The indicators which would be used for assessment are: size, interconnectedness, substitutability and complexity.

Based on the sample of banks chosen for computation of their systemic importance, a relative composite systemic importance score of the banks will be computed. RBI will determine a cut-off score beyond which banks will be considered as D-SIBs. Based on their systemic importance scores in ascending order, banks will be plotted into four different buckets and will be required to have additional Common Equity Tier 1 capital requirement ranging from 0.20% to 0.80% of risk weighted assets, depending upon the bucket they are plotted into.

Based on the data as on March 31, 2013, it is expected that about 4 to 6 banks may be designated as D-SIBs under various buckets. D-SIBs will also be subjected to differentiated supervisory requirements and higher intensity of supervision based on the risks they pose to the financial system.

The computation of systemic importance scores will be carried out at yearly intervals. The names of the banks classified as D-SIBs will be disclosed in August every year starting from 2015.

Background

The draft framework for dealing with D-SIBs was placed on the RBI’s website on December 2, 2013 for views and comments. While finalising the framework, views and comments received on the draft framework have been taken into account. The First Bi-monthly Monetary Policy Statement issued on April 1, 2014 announced that, based on the comments/feedback received, the final framework would be issued by end of May 2014.

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