Toll giant, Macquarie, poses 'systemic risk' to global banks

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Australia's Macquarie may face big-bank capital charge: Moody's

REUTERS - Mon Jul 25, 2011 10:29pm EDT

(This article was first published on Thomson Reuters Accelus, a leading provider of connected risk and compliance information and online solutions to the global financial services community. accelus.thomsonreuters.com)

By Nathan Lynch and Wietske Blees

SYDNEY, July 26 (Thomson Reuters Accelus) - Macquarie Group could be included as one of 28 systemically important global banks that will have to hold additional capital of between 1 and 1.5 per cent when the so-called "G-SIB" rules take effect, a leading rating agency has warned.

A report issued by Moody's on Monday listed Macquarie bank in 21st place in a list of global banks that would pose the greatest systemic risk in the event of a collapse.

The report said Macquarie had been given a score of 11 on a global scale of interconnectedness, complexity and size. The list was topped by Deutsche Bank (DBKGn.DE) with a score of 23.3.

In terms of its level of systemic risk, Macquarie was grouped together with banks such as Unicredit , Royal Bank of Canada , Mizuho Financial and Santander .

Moody's said it had selected a sample of 28 banks based on the size of their capital markets activities, given that the Basel Committee's methodology places a significant weight on intra-financial activities.

The Moody's analysis ranked the 28 banks on three main metrics: reliance on wholesale funding, which indicates interconnectedness; the holdings of illiquid level 3 financial intermediary trading assets (as a portion of total assets), which indicates complexity; and overall size, based on total assets as a portion of the combined total assets in the sample.

"The Basel Committee proposes similar metrics that capture wholesale funding, level 3 assets and size. The three metrics discussed here are only a subset of the metrics we use," Moody's said.

"Further, differences in balance sheets and accounting limit the comparability of banks. Despite these limitations, high scores on each of the three metrics indicate a bank's systemic importance."

Last week, the Basel Committee on Banking Supervision published a proposed methodology to identify global systemically important banks (G-SIBs), which will be subject to the additional capital surcharge.

According to the proposals, G-SIBs have five common qualities: size, interconnectedness, lack of substitutability, global cross-jurisdictional activity and complexity. The Basel Committee said it had identified 28 banks that would qualify as G-SIBs, but it stopped short of naming them.

Moody's, which used the Basel Committee criteria in an attempt to identify the banks in question, said Macquarie had scored highly in terms of its reliance on wholesale funding and complexity but was the smallest bank in the list.

Australia's four major banks were not included in the comparison exercise as Moody's does not believe them to pose a significant systemic risk.

(Additional reporting by Huw Jones of Reuters News in LONDON)

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(This article was first published by the Compliance Complete service of Thomson Reuters Accelus. Compliance Complete (here) provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 230 regulators and exchanges.)