BNP Paribas moves up the ranking of systemic banks

On Tuesday, the Financial Stability Board (FSB) published its updated ranking of systemically important banks, i.e. banks whose failure would have repercussions on the global financial system. BNP Paribas, previously classified in category 2, has been upgraded to category 3.

BNP Paribas moves from second to third category

Every year, the Financial Stability Board (FSB) updates the list of systemically important banks worldwide. The banks included in this list are, by virtue of their size and activities, the most likely to impact global finance if they were to fail.

This year, BNP Paribas, whose balance sheet grew during the health crisis, was moved from the second to the third category of banks. It thus takes 4th place in the ranking of the most systemic banks, behind the American banks JP Morgan and Citigroup, and the Sino-British banking giant HSBC.

To establish this ranking, which this year includes 30 banks, the Financial Stability Board examines a number of parameters, starting with the size of the banks' balance sheets, the degree of complexity of their activities, their geographical location and their substitutability in the event of bankruptcy.

Stricter requirements for systemic banks

Moving up the list of systemically important banks is not exactly good news for the institutions concerned, which have to tie up billions of euros or dollars in capital to meet the requirements of the Financial Stability Board.

This capital cushion is equal to 2% of assets for Tier 3 banks, compared with 1.5% for Tier 2 banks. The FSB is basing itself on data for 2020, during which BNP Paribas' balance sheet grew by 15%, from €2,164 billion at the end of 2019 to €2,488 billion at the end of 2020.

This rise in the balance sheet is largely due to the increase in loans granted by BNP Paribas during the health crisis, notably government-guaranteed loans, as well as to the increase in customer deposits.

The capital surcharge will only be applied from January 1, 2023, giving BNP Paribas, like the other banks in the ranking, plenty of time to prepare. However, the Group has every reason to be confident: the minimum CET1 ratio required is 9.23%, and BNP Paribas has a ratio of 13%.

U.S. banks JP Morgan and Goldman Sachs have also both moved up a category on the list, which contains 5 categories. JP Morgan, last year's category 3, has moved up to category 4 this year, and is the only bank on the list to be in this category (category 5 exists, but does not currently include any banks). Goldman Sachs has moved up from category 1 to category 2.

In addition to BNP Paribas, 3 other French banks are on the list of systemically important banks worldwide. These are Crédit Agricole, Société Générale and BPCE, all of which are classified in category 1.