Basel 3 may list some Indian banks locally too-big-to-fail

RBI Governor D Subbarao today said they are awaiting final report of the Basel Committee on global systematically important banks (GSIBs) and expressed hope that the report may list some large domestic banks as domestically systematically important banks (D-SIBs).

"There are no local banks in the list of the GSIBs as of now. However, the Basel Committee is working on the minimum principles for domestically systemically important banks (D-SIBs)...we are waiting for the finalisation of these norms and when these norms come up, some domestic institutions might be designated as D-SIBs," Subbarao told a banking summit organised by FICCI and IBA here today.

The Governor said there is a need to have sound mechanisms for DSIBs and he hopes that the Basel Committee on GSIBs will prescribe higher solvency standards DSIBs. The Financial Stability Board (FSB) had last October published its consultative document on a common template for GSIBs, which seeks to include a set of options and proposals to improve the data on linkages between GSIBs and on their exposures and funding dependencies.

The FSB's attempt at improving the solvency of large bank got added importance following the 2008 credit crisis which saw many of the world's mightiest banks going belly up or getting bailed out by governments across the Western world. Following this crisis, decisive steps have been taken at the international level to advance the programme of financial reforms, including major improvements in regulation and supervision.

The FSB is framing rule to reduce the moral hazard posed by systemically important financial institutions and put in place effective resolution of systemically important financial institutions.