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StanChart Now Considered 'Too Big to Fail'

Standard Chartered has just been added to a list of "global systemically important financial institutions"

Alanna Petroff 7 November, 2012 | 1:45PM

Standard Chartered (STAN) has recently been added to the list of "global systemically important financial institutions" (G-SIFI), which is published by the Financial Stability Board. 

"We were surprised that the original list, published in 2011, did not include [Standard Chartered], so this update is not unexpected," said Morningstar banking analyst Erin Davis.

The updated list for 2012 no longer features Lloyds Banking Group (LLOY), which had been included in the previous year. Davis said she had originally been surprised that Lloyds had been included in the first place since it is largely a UK-focused bank. Removing Lloyds from the list this year was not unexpected, she said. 

The list of 'too-big-to-fail' financial institutions was originally created in 2011 after G20 leaders asked the Financial Stability Board to develop policies to deal with the potential failure of huge, systemically important banks and financial institutions. In November 2011, the Financial Stability Board published a set of policy measures to address these concerns and named 29 banks that would need to “have additional loss absorption capacity” and would be subjected to “more intensive and effective supervision”.

Overall, the updated 2012 list saw a few minor changes:

“Compared with the group of [banks] published in 2011, two banks have been added--BBVA and Standard Chartered-- and three banks removed: Dexia, as it is undergoing an orderly resolution process; Commerzbank and Lloyds, as result of a decline in their global systemic importance,” stated the Financial Stability Board report.

"Overall, we think this announcement is good for Standard Chartered, despite the fact that the bank [will] now be required to hold more capital," said Davis. "Standard Chartered … will be required to hold 1% more capital on top of the Basel III 7% minimum, for a total of 8%. The impact of this will be minimal, as Standard Chartered's UK regulator already requires the bank to hold 10%. Moreover, we think Standard Chartered's inclusion on the list may be appealing to clients, both because it gives official recognition of Standard Chartered as a global powerhouse and because it seems to implicitly promise government backing if the bank were to become distressed."

Meanwhile, being excluded from the list means very little for Lloyds since this development does not change its capital requirements, said Davis.

"Its inclusion or lack thereof is immaterial," she said.

The next update to the G-SIFI list is scheduled for November 2013.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author Alanna Petroff

Alanna Petroff  is a financial journalist with Morningstar UK.