G-SIFI Designation: Scarlet Letter or Veiled Opportunity for Global Banks?

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Global Banking: Foresight and Insights video series featuring Knowledge@Wharton and Ernst & Young provides 2012 global banking outlook in light of G-SIFI designations for “banks too big to fail.”

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G-SIFIs may see this as an opportunity to take on additional risk given their status as vital to the global economy.

In November, global banks watched intently as international regulators identified and announced the largest, most globally connected financial institutions. With the global systemically important financial institution, or “G-SIFI,” designation comes a presumption some critics contend, that the bank is too big to fail, as well as a requirement to hold up to 2.5 percent of excess capital. In the recently released video series, “SIFI Rules are Recasting Global Banking,” professionals from Wharton and Ernst & Young discuss how G-SIFI designations could impact international finance and where the opportunities may lie.

At the start of 2012, banks that compete both globally and domestically will be placed into stratified categories, forcing systemically important financial institutions to rethink their target customers, service offerings and approach to strategic growth. Customers and counterparties will also have a say in the matter. They now have a choice whether or not to deal with G-SIFIs. Global banks must keep this in mind as the tension between too big to fail and moral hazard continues to intensify.

“The market’s response to G-SIFI designations will be extremely interesting in that some counterparties may feel more comfortable transacting with the 29 banks that were identified,” said Itay Goldstein, professor of finance at The Wharton School. “At the same time, G-SIFIs may see this as an opportunity to take on additional risk given their status as vital to the global economy.”

In the feature clip, “What Does SIFI Status Mean for Banks?” Itay Goldstein, Bill Schlich, Ernst & Young Global Banking and Capital Markets Leader, and Don Vangel, Ernst & Young Senior Advisor Banking and Regulator Matters, discuss the complexities created by G-SIFI designations and how global banks will compete under the new capital requirements.

Schlich added: “This is certainly progress towards minimizing the possibility of a large-scale bank failure, and in the worst case scenario, making it as soft a landing as possible. Global banks must view this as an opportunity to revise their growth strategies and make necessary changes to their operating models to thrive in the recast global banking environment.”

This is the fifth installment in the video series. Upcoming installments will address topics such as the impact of mobile technologies and the future of the global banking industry.

About The Wharton School and Knowledge@Wharton
Knowledge@Wharton is the online business analysis journal of the Wharton School of the University of Pennsylvania. The site, which is free, captures relevant knowledge generated at Wharton and beyond by offering articles and videos based on research, conferences, speakers, books and interviews with faculty and other experts on current business topics. The Knowledge@Wharton network – including Chinese, Spanish, Portuguese, Indian, Arabic and High School editions – has more than 1.7 million subscribers worldwide.

The Wharton School of the University of Pennsylvania — founded in 1881 as the first collegiate business school — is recognized globally for intellectual leadership and ongoing innovation across every major discipline of business education. The most comprehensive source of business knowledge in the world, Wharton bridges research and practice through its broad engagement with the global business community. The School has 5,000 undergraduate, MBA, executive MBA, and doctoral students; more than 9,000 annual participants in executive education programs; and an alumni network of 88,000 graduates.

About Ernst & Young’s Global Banking & Capital Markets Center
In today’s globally competitive and highly regulated environment, managing risk effectively while satisfying an array of divergent stakeholders is a key goal of banks and securities firms. Ernst & Young’s Global Banking & Capital Markets Center brings together a worldwide team of professionals to help clients achieve their potential – a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify the implications and develop points of view on relevant industry issues. Ultimately it enables us to help clients meet their goals and compete more effectively. It’s how Ernst & Young makes a difference.

About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 152,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit http://www.ey.com. This news release has been issued by EYGM Limited, a member of the global Ernst & Young organization that also does not provide any services to clients.

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