Authors: Paola De Vincentiis
The severe turbulence initiated by the subprime crisis in the United States and the dramatic shock on the financial system produced by the collapse of Lehman Brothers stimulated a careful consideration on the weaknesses of regulatory schemes. All main international supervisory bodies were involved in a critical review of the architecture of controls, in order to understand what went wrong and what need to be changed. One important outcome of this analysis was the decision to identify a group of global systemically important financial institutions (G-SIFI), in order to put them under special supervision. The idea is quite simple: if a bank or another type of financial institution is so big and interconnected that its failure has the potential to disrupt the financial system at a global level, then the probability of such a failure has to be reduced by imposing extra capital requirements and reinforced monitoring. The criteria to identify the G-SIFI were fixed by the Basel Committee on Banking Supervision and first applied on November 2011, when the Financial Stability Board published a list of 29 global systemically important banks (G-SIB).
Given that the 29 G-SIB will have to comply with reinforced capital requirement and are subject to a special monitoring by supervisory authorities, their reliability should in principle be reinforced. Our research question is the following: has the financial markets recognized a special status to the G-SIB compared to other major banks? Has the market perceived a reduced risk and requested a reduced yield of return? In simpler words: does the inclusion in the group of G-SIB make any difference for international investors? And, strictly related to this question, do international investors believe in the effectiveness of the new supervisory framework applied to the major players in the financial world?
Keywords: SIFI, SIB, prudential supervision, risk premium, financial system stability