{"id":231280,"date":"2023-03-16T20:02:37","date_gmt":"2023-03-16T14:32:37","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=231280"},"modified":"2023-03-16T20:02:37","modified_gmt":"2023-03-16T14:32:37","slug":"svb-signature-bank-collapse-what-are-too-big-to-fail-banks-and-what-makes-indian-banks-safe","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/svb-signature-bank-collapse-what-are-too-big-to-fail-banks-and-what-makes-indian-banks-safe\/","title":{"rendered":"SVB, Signature Bank collapse: What are \u2018Too-Big-To-Fail\u2019 banks, and what makes Indian banks safe"},"content":{"rendered":"\n

S<\/strong>ource<\/strong>: The post is based on the article\u00a0\u201cSVB, Signature Bank collapse: What are \u2018Too-Big-To-Fail\u2019 banks, and what makes Indian banks safe\u201d <\/strong>published in the Indian Express <\/strong>on\u00a016th March 2023<\/strong>.<\/p>\n

Syllabus<\/strong>: GS \u2013 3: Effects of liberalization on the economy.<\/p>\n

Relevance<\/strong>: About SVB failure and its impact on India.<\/p>\n

News<\/strong>: The fall of Silicon Valley Bank (SVB) has had its effects around the world.<\/p>\n\n\n\n
Must read:\u00a0<\/strong>Silicon Valley Bank crisis: Reasons and Impacts\u202f- Explained, pointwise<\/strong><\/a><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Why are Indian banks less vulnerable to bank failures?<\/span><\/h2>\n\n\n\n
Read more: Why local banks are insulated from SVB ripples<\/a><\/strong><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

This is because a)<\/strong> India’s domestic banks have a different balance sheet structure, where deposits cannot be withdrawn in bulk quantities like SVB, b)<\/strong> Household savings constitute a major part of bank deposits in India. On the other hand, in the US a large portion of bank deposits are from corporates, c)<\/strong> A large part of Indian deposits is with public sector banks, and most of the rest is with very strong private sector lenders, d)<\/strong> The approach of the regulator has generally been that depositors\u2019 money should be protected at any cost, e)<\/strong> India have domestic systemically important banks (D-SIBs)<\/strong><\/a>\u00a0and f)<\/strong> While the Basel-III Norms prescribe a capital adequacy ratio (CAR) of 8%, the RBI has mandated a CAR of 9% for scheduled commercial banks and 12% for public sector banks.<\/p>\n

About Global-SIBs<\/h2>\n

Need<\/strong>: 2008 financial crisis highlighted the issues with large and highly interconnected financial institutions in the real economy.<\/p>\n

Recommendation<\/strong>: In 2010, the Financial Stability Board (FSB)<\/strong> recommended that all member countries should put in place a framework to reduce risks attributable to Systemically Important Financial Institutions (SIFIs) in their jurisdictions.<\/p>\n

Further, the Basel, Switzerland-based Financial Stability Board (FSB) <\/strong>has identified a list of global systemically important banks (G-SIBs).<\/p>\n

G-SIBs at present<\/strong>: There are 30 G-SIBs currently, including JP Morgan, Citibank, HSBC, Bank of America, Bank of China, Barclays, BNP Paribas, Deutsche Bank, and Goldman Sachs. No Indian bank is on the list.<\/strong><\/p>\n

Advantages of being SIBs<\/strong>: They are perceived as banks that are \u2018Too Big To Fail (TBTF)\u2019<\/strong>, due to which these banks enjoy certain advantages in the funding markets.<\/p>\n

How does the RBI Select D-SIBs in India?<\/h2>\n

The RBI follows a two-step process to assess the systemic importance of banks.<\/p>\n

First<\/strong>, a sample of banks to be assessed for their systemic importance is decided. Banks having a size beyond 2% of GDP will be selected in the sample.<\/p>\n

Second<\/strong>, Once the sample of banks is selected, a detailed study to compute their systemic importance is initiated. Based on the study, a composite score of systemic importance is computed for each bank. Banks that have systemic importance above a certain threshold are designated as D-SIBs.<\/p>\n

Next, the D-SIBs are segregated into buckets based on their systemic importance scores.<\/p>\n

What are the concerns associated with D-SIBs?<\/h2>\n

D-SIB tag indicates that in case of distress, the government is expected to support these banks. This a)<\/strong> encourages risk-taking, b)<\/strong> reduces market discipline, c)<\/strong> creates competitive distortions, and d)<\/strong> increases the probability of distress in the future.<\/p>\n

So the RBI recommended that the SIBs should be subjected to additional policy measures to guard against systemic risks and moral hazard issues<\/p>\n","protected":false},"excerpt":{"rendered":"

Source: The post is based on the article\u00a0\u201cSVB, Signature Bank collapse: What are \u2018Too-Big-To-Fail\u2019 banks, and what makes Indian banks safe\u201d published in the Indian Express on\u00a016th March 2023. Syllabus: GS \u2013 3: Effects of liberalization on the economy. Relevance: About SVB failure and its impact on India. News: The fall of Silicon Valley Bank… Continue reading SVB, Signature Bank collapse: What are \u2018Too-Big-To-Fail\u2019 banks, and what makes Indian banks safe<\/span><\/a><\/p>\n","protected":false},"author":10311,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[216,10500],"class_list":["post-231280","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-3","tag-indian-express","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1700685602},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/231280","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10311"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=231280"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/231280\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=231280"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=231280"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=231280"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}