How is the G-SIB score calculated, and how does it determine the additional capital buffer a bank must hold?

The G-SIB (Global Systemically Important Bank) assessment methodology uses a multi-indicator scoring system to identify banks whose failure would pose a threat to global financial stability. Higher scores result in larger capital surcharges.\n\nFive Indicator Categories (Equal Weight: 20% Each):\n\n| Category | Sub-Indicators | Weight per Sub-Indicator |\n|---|---|---|\n| Size | Total exposures (leverage ratio denominator) | 20.0% |\n| Interconnectedness | Intra-financial assets, intra-financial liabilities, securities outstanding | 6.67% each |\n| Substitutability | Payments activity, assets under custody, underwriting activity | 6.67% each |\n| Complexity | OTC derivatives notional, Level 3 assets, trading and AFS securities | 6.67% each |\n| Cross-jurisdictional activity | Cross-jurisdictional claims, cross-jurisdictional liabilities | 10.0% each |\n\nScore Calculation:\n\nFor each sub-indicator:\n\nBank's score = (Bank's value / Sum of all sample banks' values) x 10,000\n\nThe category score is the average of its sub-indicator scores. The overall G-SIB score is the sum of all five category scores.\n\nBuffer Buckets:\n\n| Bucket | Score Range | Additional CET1 Buffer |\n|---|---|---|\n| 1 | 130-229 | 1.0% |\n| 2 | 230-329 | 1.5% |\n| 3 | 330-429 | 2.0% |\n| 4 | 430-529 | 2.5% |\n| 5 (empty) | 530+ | 3.5% |\n\nBucket 5 is intentionally kept empty to discourage banks from becoming even more systemically important. If a bank enters bucket 5, a new higher bucket is created.\n\nWorked Example:\nVanguard International Bank (hypothetical) calculates its G-SIB score:\n\n| Category | Bank Value | System Total | Score |\n|---|---|---|---|\n| Size: Total exposures | $2.8T | $68T | (2.8/68) x 10,000 = 412 |\n| Interconnectedness (avg of 3) | — | — | 285 |\n| Substitutability (avg of 3) | — | — | 195 |\n| Complexity (avg of 3) | — | — | 340 |\n| Cross-jurisdictional (avg of 2) | — | — | 310 |\n\nWeighted scores (20% each):\n- Size: 412 x 0.20 = 82.4\n- Interconnectedness: 285 x 0.20 = 57.0\n- Substitutability: 195 x 0.20 = 39.0\n- Complexity: 340 x 0.20 = 68.0\n- Cross-jurisdictional: 310 x 0.20 = 62.0\n\nTotal G-SIB score: 82.4 + 57.0 + 39.0 + 68.0 + 62.0 = 308.4\n\nBucket allocation: Score 308 falls in bucket 2 (230-329), requiring an additional CET1 buffer of 1.5%.\n\nIf the bank has a minimum CET1 of 4.5%, plus capital conservation buffer of 2.5%, plus G-SIB surcharge of 1.5%, the total CET1 requirement becomes 8.5%.\n\nAdditional G-SIB Consequences:\n- Higher leverage ratio: 3% + 50% of G-SIB buffer = 3.75% for bucket 2\n- TLAC (Total Loss-Absorbing Capacity): minimum 18% of RWA + 6.75% of leverage exposure\n- Enhanced supervision and resolution planning requirements\n- Cross-border cooperation in resolution (single point of entry or multiple point of entry strategies)\n- Annual score recalculation with potential bucket migration\n\nThe FSB publishes the G-SIB list annually each November, with buffer requirements taking effect 14 months later.\n\nStudy systemic risk frameworks in our FRM Part II course.