Banking Sector

Economy - Banking Sector

• A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets.
• Due to their importance in the financial stability of a country, banks are highly regulated in most countries.
• Most nations have institutionalized a system known as fractional reserve banking under which banks hold liquid assets equal to only a portion of their current liabilities.
• In addition to other regulations intended to ensure liquidity, banks are generally subject to minimum capital requirements based on an international set of capital standards, known as the Basel Accords.

Types of Banking

1. Retail banks deal specifically with retail consumers. These banks offer services to the general public and are also called personal or general banking institutions. Retail banks provide services such as checking and savings accounts, loan and mortgage services, financing for automobiles, and short-term loans like overdraft protection. Most retail banks also offer credit card services to their customers, and may also supply their clients with foreign currency exchange. These banks also cater to high-net-worth individuals, giving them specialty services such as private banking and wealth management. Examples of retail banks include TD Bank and Citibank.
2. Commercial or corporate banks provide specialty services to their business clients from small business owners to large, corporate entities. Along with day-to-day business banking, these banks also provide their clients with other things such as credit services, cash management, commercial real estate services, employer services, and trade finance. JPMorgan Chase and Bank of America are two popular examples of commercial banks.
3. Investment banks focus on providing corporate clients with complex services and financial transactions such as underwriting and assisting with merger and acquisition (M&A) activity. As such, they are known primarily as financial intermediaries in most of these transactions. Clients commonly range from large corporations, other financial institutions, pension funds, governments, and hedge funds. Morgan Stanley and Goldman Sachs are examples of U.S. investment banks.

Reserve Bank of India

• The Reserve Bank of India (RBI) is the central bank of India, which was established on April 1, 1935, under the Reserve Bank of India Act.
• The Reserve Bank of India uses monetary policy to create financial stability in India, and it is charged with regulating the country’s currency and credit systems.
• Located in Mumbai, the RBI serves the financial market in many ways. The bank sets the overnight interbank lending rate. The Mumbai Interbank Offer Rate (MIBOR) serves as a benchmark for interest rate–related financial instruments in India.
• The main purpose of the RBI is to conduct consolidated supervision of the financial sector in India, which is made up of commercial banks, financial institutions, and non-banking finance firms.
• Initiatives adopted by the RBI include restructuring bank inspections, introducing off-site surveillance of banks and financial institutions, and strengthening the role of auditors.
• First and foremost, the RBI formulates, implements, and monitors India’s monetary policy. The bank’s management objective is to maintain price stability and ensure that credit is flowing to productive economic sectors.
• The RBI also manages all foreign exchange under the Foreign Exchange Management Act of 1999.
• This act allows the RBI to facilitate external trade and payments to promote the development and health of the foreign exchange market in India.
• The RBI acts as a regulator and supervisor of the overall financial system.
• This injects public confidence into the national financial system, protects interest rates, and provides positive banking alternatives to the public.
• Finally, the RBI acts as the issuer of national currency.
• For India, this means that currency is either issued or destroyed depending on its fit for current circulation. This provides the Indian public with a supply of currency in the form of dependable notes and coins, a lingering issue in India.
• In 2018 the RBI banned the use of virtual currencies by the financial agencies and banks that it regulates.

Commercial Bank

• A commercial bank is a type of financial institution that accepts deposits, offers checking account services, makes various loans, and offers basic financial products like certificates of deposit (CDs) and savings accounts to individuals and small businesses. A commercial bank is where most people do their banking, as opposed to an investment bank.
• Commercial banks make money by providing loans and earning interest income from those loans. The types of loans a commercial bank can issue vary and may include mortgages, auto loans, business loans, and personal loans. A commercial bank may specialize in just one or a few types of loans.
• Customer deposits, such as checking accounts, savings accounts, money market accounts, and CDs, provide banks with the capital to make loans. Customers who deposit money into these accounts effectively lend money to the bank and are paid interest. However, the interest rate paid by the bank on money they borrow is less than the rate charged on money they lend.

Non-Banking Financial Companies 

• Non-banking financial companies (NBFCs) are financial institutions that offer various banking services but do not have a banking license. Generally, these institutions are not allowed to take traditional demand deposits—readily available funds, such as those in checking or savings accounts—from the public. This limitation keeps them outside the scope of conventional oversight from federal and state financial regulators.
• NBFCs can offer banking services such as loans and credit facilities, currency exchange, retirement planning, money markets, underwriting, and merger activities.
• NBFCs are officially classified under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act describes them as companies "predominantly engaged in a financial activity" when more than 85% of their consolidated annual gross revenues or consolidated assets are financial in nature.
• This classification technically encompasses a wide range of companies offering bank-like financing and investing services. Examples of NBFCs include insurance companies, money market funds, asset managers, hedge funds, private equity firms, mobile payment systems, micro-lenders, and peer-to-peer lenders.

What is difference between banks & NBFCs?

NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:

• NBFC cannot accept demand deposits;
• NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
• Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.

What are the different types/categories of NBFCs registered with RBI?

Within the broad categorization the different types of NBFCs are as follows:

1. Asset Finance Company (AFC) 
2. Investment Company (IC)
3. Loan Company (LC)
4. Infrastructure Finance Company (IFC)
5. Systemically Important Core Investment Company (CIC-ND-SI)
6. Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC)
7. Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI)
8. Non-Banking Financial Company – Factors (NBFC-Factors)
9. Mortgage Guarantee Companies (MGC)
10. NBFC- Non-Operative Financial Holding Company (NOFHC)

NABARD

• In NABARD the majority stake is held by the Reserve Bank. NABARD is an apex Development Bank with a mandate for:
  • Facilitating credit flow for promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts.
  • Support all other allied economic activities in rural areas, promote integrated and sustainable rural development and secure prosperity of rural areas.
• NABARD acts as a regulator for co-operative banks and Regional Rural Banks (RRBs).
• NABARD also helps incapacity building of partner agencies and development institutions.
• NABARD provide facilities for training, for dissemination of information and the promotion of research including the undertaking of studies, researches, techno-economic and other surveys in the field of rural banking, agriculture and rural development. It provides technical, legal, financial, marketing and administrative assistance to any person engaged in agriculture and rural development activities.

National Housing Bank:

National Housing Bank (NHB), a wholly owned subsidiary of Reserve Bank of India (RBI), was set up on 9 July 1988 under the National Housing Bank Act, 1987.

 NHB is an apex financial institution for housing. NHB has been established with an objective to operate as a principal agency to promote housing finance institutions both at local and regional levels and to provide financial and other support incidental to such institutions and for matters connected therewith.

NHB registers, regulates and supervises Housing Finance Company (HFCs), keeps surveillance through On-site & Off-site Mechanisms and co-ordinates with other Regulators.

Small Industries Development Bank of India (SIDBI)

• Small Industries Development Bank of India (SIDBI) is a development financial institution in India, headquartered at Lucknow and having its offices all over the country.
• Its purpose is to provide refinance facilities and short term lending to industries, and serves as the principal financial institution in the Micro, Small and Medium Enterprises (MSME) sector.
• SIDBI also coordinates the functions of institutions engaged in similar activities. SIDBI operates under the Department of Financial Services, Government of India.
• SIDBI is one of the four All India Financial Institutions regulated and supervised by the Reserve Bank; other three are EXIM Bank, NABARD and NHB. They play a salutary role in the financial markets through credit extension and refinancing operation activities and cater to the long-term financing needs of the industrial sector.
• SIDBI is active in the development of Micro Finance Institutions through SIDBI Foundation for Micro Credit, and assists in extending micro-finance through the Micro Finance Institution (MFI) route. Its promotion & development program focuses on rural enterprises promotion and entrepreneurship development.

Micro Units Development and Refinance Agency Bank (MUDRA Bank):

• It is a public sector financial institution in India. It provides loans at low rates to micro-finance institutions and non-banking financial institutions which then provide credit to MSMEs.
• The Industrial Investment Bank of India (IIBI) The Industrial Investment Bank of India was a 100% government of India-owned financial investment institution.
• It was established in 1971 by resolution of the Parliament of India u/s 617 of the Companies Act.
• The bank was headquartered at Kolkata and had presence in New Delhi, Mumbai, Chennai, Bengaluru, Ahmedabad and Guwahati.
• The Industrial Reconstruction Corporation of India Ltd., set up in 1971 for rehabilitation of sick industrial companies, was reconstituted as Industrial Reconstruction Bank of India in 1985 under the IRBI Act, 1984.
• With a view to converting the institution into a full-fledged development financial institution, IRBI was incorporated under the Companies Act 1956, as Industrial Investment Bank of India Ltd. (IIBI) in March 1997.
• IIBI offered a wide range of products and services, including term loan assistance for project finance, short duration non-project asset-backed financing, working capital/other short-term loans to companies, equity subscription, asset credit, equipment finance and investments in capital market and money market instruments.
• In 2005, a merger of IIBI, IDBI and IFCI was considered, but IIBI refused and it was decided in 2006-2007 to close the bank.
• As of 2011, the bank operated from its sole remaining office in Kolkata.
• Deloitte and Touché was appointed to dispose of IIBI’s Non-Performing assets. The bank’s closure was announced in the Budget 2012.

IFCI

• IFCI, previously Industrial Finance Corporation of India, is a Non-Banking Finance Company in the public sector.
• Established in 1948 as a statutory corporation, IFCI is currently a company listed on BSE and NSE.
• IFCI manages seven numbers of subsidiaries and one associate under its fold.
• It provides financial support for the diversified growth of Industries across the spectrum.
• The financing activities cover various kinds of projects such as airports, roads, telecom, power, real estate, manufacturing, services sector and such other allied industries.
• The company has played a pivotal role in setting up various market intermediaries of repute in several niche areas like stock exchanges, entrepreneurship development organizations, consultancy organizations, educational and skill development institutes across the length and breadth of the country.

Export-Import Bank of India:

• Export–Import Bank of India is the premier export finance institution in India, established in 1982 under Export-Import Bank of India Act 1981.
• Since its inception, Exim Bank of India has been both a catalyst and a key player in the promotion of cross border trade and investment.
• Commencing operations as a purveyor of export credit, like other export credit agencies in the world, Exim Bank India has, over the period, evolved into an institution that plays a major role in partnering Indian industries, particularly the Small and Medium Enterprises, in their globalization efforts, through a wide range of products and services offered at all stages of the business cycle, starting from import of technology and export product development to export production, export marketing, pre-shipment and post-shipment and overseas investment.

Co-operative banks:

• Co-operative banks are small-sized units organized in the co-operative sector which operate both in urban and non-urban centers.
• Co-operative Banks in India are registered under the Co-operative Societies Act.
• The cooperative bank is also regulated by the RBI. T
• hey are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.
• Cooperative Banks in India have become an integral part of the success of Indian Financial Inclusion story.
• They have achieved many landmarks since their creation and have helped a normal rural Indian to feel empowered and secure. The story has not been smooth and has its share of procedural glitches and woes placed at various pockets

Extent of Cooperative Banking

• Indian cooperative structures are one of the largest such networks in the world with more than 200 million members. It has about 67% penetration in villages and fund 46% of the total rural credit. It also stands for 36% of the total distribution of rural fertilizers and 28% of rural fair price shops.

Structure of Cooperative Banking in India

• The structure of cooperative network in India can be divided into 2 broad segments-
  • Urban Cooperative Banks
  • Rural Cooperatives

Urban Cooperatives

• Urban Cooperatives can be further divided into scheduled and non-scheduled.
• Both the categories are further divided into multi-state and single-state.
• Majority of these banks fall in the non-scheduled and single-state category.
• Banking activities of Urban Cooperative Banks are monitored by RBI.
• Registration and Management activities are managed by Registrar of Cooperative Societies (RCS).
• These RCS operate in single-state and Central RCS (CRCS) operate in multiple state.

Rural Cooperatives

• The rural cooperatives are further divided into short-term and long-term structures.
• The short-term cooperative banks are three tiered operating in different states. These are
  • State Cooperative Banks- They operate at the apex level in states
  • District Central Cooperative Banks-They operate at the district levels
  • Primary Agricultural Credit Societies-They operate at the village or grass-root level.
• Likewise, the long-term structures are further divided into –
  • State Cooperative Agriculture and Rural Development Banks (SCARDS) - These operate at state-level.
  • Primary Cooperative Agriculture and Rural Development Banks (PCARDBS)-They operate at district/ block level.
• The rural banking cooperatives have a complex monitoring structure as they have a dual control which has led to many problems. A Forum called State Level Task Force on Cooperative Urban Banks (TAFCUB) has been set-up to look into issues related to duality in control.
  • All banking activities are regulated by a shared arrangement between RBI and NABARD.
  • All management and registration activities are managed by RCS

Public Sector Bank recapitalization

• The Government approved to provide an additional amount of Rs. 6000 crore, in addition to the Rs. 15000 crore already provided in the Budget 2010-11, to ensure Tier I CRAR (Capital to Risk Weighted Assets) of Public Sector Banks (PSBs) and also to raise Government of India holding in all PSBs to 58%. The proposed capital infusion would enhance the lending capacity of the PSBs to meet the credit requirement of the economy in order to maintain and accelerate the economic growth momentum. This additional, availability of capital is likely to benefit employment oriented sectors, especially agriculture, micro & small enterprises, export, entrepreneurs etc.
• During the recent global financial crisis, the Public Sector Banks (PSBs) played a pivotal role in the economy by extending credit to all the productive sectors of the economy. These banks, in this backdrop, would require capital commensurate with the increase in there. Risk Weighted Assets (RWAs). Though the minimum regulatory requirement of Capital to Risk Weighted Assets (CRAR) for the banks is 9%, the Government has mandated a total CRAR of 12% with 8% Tier I Capital. Keeping, all other factors, the Finance Minister, in his Budget speech for the year 2010-11 announced that capital would be infused in the PSBs so that these are able to attain a minimum & percent Tier I Capital by 31st March, 2011.
• There are many PSBs where the Government of India’s holding is close to 51%. This implies that in case of need, these banks cannot access the capital market for raising additional capital by dilution of Government holding. The present capitalization process of the PSBs has presented an opportunity to the Government to raise its shareholding in the PSBs, especially in those PSBs where the Government’s holding is close to 51%. This will enable the PSBs to raise additional capital from the market, in future, without depending upon the Government.
• Recapitalization is a process of changing a firm’s capital structure by altering the mix of debt and equity financing without changing the total amount of capital.

Differential Banks

Small Finance Banks and Payment Banks Criteria

• The Reserve Bank of India (RBI) issues licenses to entities to carry on the business of banking and other business in which banking companies may engage, as defined and described in Sections 5 (b) and 6 (1) (a) to (o) of the Banking Regulation Act, 1949, respectively.
• RBI has come up with guidelines for two new categories of banks- ‘small and payments banks’ and states that these can improve financial inclusion.

Small Finance Banks

• The objectives of setting up of small finance banks will be to further financial inclusion by (a) provision of savings vehicles, and (ii) supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganized sector entities, through high technology-low cost operations.
• Eligible Promoters: Resident individuals/professionals with 10 years of experience in banking and finance; and companies and societies owned and controlled by residents will be eligible to set up small finance banks. Existing Non-Banking Finance Companies (NBFCs), Micro Finance Institutions (MFIs), and Local Area Banks (LABs) that are owned and controlled by residents can also opt for conversion into small finance banks. Promoter/promoter groups should be ‘fit and proper’ with a sound track record of professional experience or of running their businesses for at least a period of five years in order to be eligible to promote small finance banks.

Payment Banks:

The primary objective of setting up of Payments Banks will be to further financial inclusion by providing  (i) small savings accounts and (ii) payments / remittance services to migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users, by enabling high volume low value transactions in deposits and payments / remittance services in a secured technology-driven environment.

Registration, Licensing and Regulations

• The Payments Bank will be registered as a public limited company under the Companies Act, 2013, and licensed under Section 22 of the Banking Regulation Act, 1949, with specific licensing conditions restricting its activities to acceptance of demand deposits and provision of payments and remittance services.

Eligibility Criteria

• The existing non-bank PPI issuers authorized under the Payment and Settlement Systems Act, 2007 (PSS Act) and other entities such as Non-Banking Finance Companies (NBFCs), corporate BCs, mobile telephone companies, super-market chains, companies, real sector cooperatives and public sector entities may apply to set up a Payments Bank. Even banks can take equity stake in a Payments Bank to the extent permitted under Section 19 (2) of the Banking Regulation Act, 1949.

Scope of Activities 

• The Payments Bank will be set up as a differentiated bank and shall confine its activities to further the objectives for which it is set up. Therefore, the Payments Bank would be permitted to undertake only certain restricted activities permitted to banks under the Banking Regulation Act, 1949, as given below:
• Acceptance of demand deposits, i.e., current deposits, and savings bank deposits. The eligible deposits mobilized by the Payments Bank would be covered under the deposit insurance scheme of the Deposit Insurance and Credit Guarantee Corporation of India (DICGC). Given that their primary role is to provide payments and remittance services and demand deposit products to small businesses and low-income households, Payments Banks will initially be restricted to holding a maximum balance of Rs. 100,000 per customer.
• Payments and remittance services through various channels including branches, BCs and mobile banking. The payments remittance services would include acceptance of funds at one end through various channels including branches and BCs and payments of cash at the other end, through branches, BCs, and Automated Teller Machines (ATMs). Cash-out can also be permitted at Point-of Sale terminal locations as per extant instructions issued under the PSS Act. In the case of walk-in customers, the bank should follow the extant KYC guidelines issued by the RBI.
• Issuance of PPIs as per instructions issued from time to time under the PSS Act.
• Internet banking - The RBI is also open to applicants transacting primarily using the Internet. The Payments Bank is expected to leverage technology to offer low cost banking solutions. Such a bank should ensure that it has all enabling systems in place including business partners, third party service providers and risk managements systems and controls to enable offering transactional services on the internet. While offering such services, the Payments Bank will be required to comply with RBI instructions on information security, electronic banking, technology risk management and cyber frauds.
• Functioning as Business Correspondent (BC) of other banks - A Payments Bank may choose to become a BC of another bank for credit and other services which it cannot offer.
  • The Payments Bank cannot set up subsidiaries to undertake non-banking financial services activities. The other financial and non-financial services activities of the promoters, if any, should be kept distinctly ring-fenced and not co-mingled with the banking and financial services  of the Payments Bank.
  • The Payments Bank will be required to use the word “Payments” in its name in order to differentiate it from other banks

Deployment of Funds

• The Payments Bank cannot undertake lending activities. Apart from amounts maintained as Cash Reserve Ratio (CRR) with RBI, minimum cash in hand and balances with a scheduled commercial bank/RBI required for operational activities and liquidity management, it will be required to invest all its monies in Government securities/Treasury Bills with maturity up to one year that are recognized by RBI as eligible securities for maintenance of Statutory Liquidity Ratio (SLR). The Payments Bank will participate in the payment and settlement system and will have access to the inter-bank uncollateralized call money market and the collateralized CBLO market for purposes of temporary liquidity management.

Capital Requirement

• Since the Payments Bank will not be allowed to assume any credit risk, and if its investments are held to maturity, such investments need not be marked to market and there may not be any need for capital for market risk.
• However, the Payments Bank will be exposed to operational risk. The Payments Bank will also be required to invest heavily in technological infrastructure for its operations. The capital will be utilized for creation of such fixed assets. Therefore, the minimum paid up voting equity capital of the Payments Bank shall be Rs. 100 crore.
• Any additional voting equity capital to be brought in will depend on the business plan of the promoters. Further, the Payments Bank should have a net worth of Rs. 100 crore at all times.
• The Payments Bank shall be required to maintain a minimum capital adequacy ratio of 15 per cent of its risk weighted assets (RWA) on a continuous basis, subject to any higher percentage as may be prescribed by RBI from time to time.
• However, as Payments Banks are not expected to deal with sophisticated products, the capital adequacy ratio will be computed under simplified Basel I standards.
• As the Payments Bank will have almost zero or negligible risk weighted assets, its compliance with a minimum capital adequacy ratio of 15 per cent would not reflect the true risk.
• Therefore, as a backstop measure, the Payments Bank should have a leverage ratio of not less than 5 per cent, i.e., its outside liabilities should not exceed 20 times its net-worth / paid-up capital and reserves.

Mission Indradhanush for revamping Public Sector Banks

• The mission includes the seven key reforms of appointments, board of bureau, capitalisation, de-stressing, empowerment, framework of accountability and governance reforms.
• The mission includes:
  • Appointments: Executives from the private sector have been hired to run state-owned banks with the government.
  • Bank Board Bureau: The Bank Board Bureau will start functioning from the next financial year and is the first step toward a full-fledged bank holding company, an entity that will house the government’s stake in state run banks struggling with mounting non-performing loans that have touched 6 per cent of gross advances.
  • Capitalization: The government will inject a total of Rs 25,000 crore of capital into debt-laden state banks in this fiscal; Rs 20,000 crore would be injected in a month. Over the next four years, the government plans to inject Rs 70,000 crore.
  • De-stressing: The government will concentrate on distressing the banks’ bad loans.
  • Empowerment: The government will strive to make it easier for PSBs to hire. The government is looking at introducing Employee Stock Ownership Plan (ESOPs) for the PSU bank managements.
  • Framework of Accountability: The government also announced a new framework of key performance indicators for state-run lenders to boost efficiency in functioning while assuring them of independence in decision making on purely commercial considerations.
  • Governance Reforms: The process of governance reforms started with “Gyan Sangam” - a conclave of PSBs and FIs organized at the beginning of 2015 in Pune which was attended by all stake-holders including Prime Minister, Finance Minister, MoS (Finance), Governor, RBI and CMDs of all PSBs and FIs. There was focus group discussion on six different topics which resulted in specific decisions on optimizing capital, digitizing processes, strengthening risk management, improving managerial performance and financial inclusion.

Basel III Norms

• Basel III is an international regulatory accord that introduced a set of reforms designed to improve the regulation, supervision and risk management within the banking sector.
• The Basel Committee on Banking Supervision published the first version of Basel III in late 2009, giving banks approximately three years to satisfy all requirements.
• Largely in response to the credit crisis, banks are required to maintain proper leverage ratios and meet certain minimum capital requirements.
• Basel III is part of the continuous effort to enhance the banking regulatory framework.
• It builds on the Basel I and Basel II documents, and seeks to improve the banking sector's ability to deal with financial stress, improve risk management, and strengthen the banks' transparency. A focus of Basel III is to foster greater resilience at the individual bank level in order to reduce the risk of system-wide shocks.

Minimum Capital Requirement

• Basel III introduced tighter capital requirements in comparison to Basel I and Basel II. Banks' regulatory capital is divided into Tier 1 and Tier 2, while Tier 1 is subdivided into Common Equity Tier 1 and additional Tier 1 capital. The distinction is important because security instruments included in Tier 1 capital have the highest level of subordination. Common Equity Tier 1 capital includes equity instruments that have discretionary dividends and no maturity, while additional Tier 1 capital comprises securities that are subordinated to most subordinated debt, have no maturity, and their dividends can be cancelled at any time. Tier 2 capital consists of unsecured subordinated debt with an original maturity of at least five years.
• Basel III left the guidelines for risk-weighted assets largely unchanged from Basel II. Risk-weighted assets represent a bank's assets weighted by coefficients of risk set forth by Basel III. The higher the credit risk of an asset, the higher its risk weight. Basel III uses credit ratings of certain assets to establish their risk coefficients.
• In comparison to Basel II, Basel III strengthened regulatory capital ratios, which are computed as a percent of risk-weighted assets. In particular, Basel III increased minimum Common Equity Tier 1 capital from 4% to 4.5%, and minimum Tier 1 capital from 4% to 6%. The overall regulatory capital was left unchanged at 8%.

Countercyclical Measures

• Basel III introduced new requirements with respect to regulatory capital for large banks to cushion against cyclical changes on their balance sheets.
• During credit expansion, banks have to set aside additional capital, while during the credit contraction, capital requirements can be loosened.
• The new guidelines also introduced the bucketing method, in which banks are grouped according to their size, complexity and importance to the overall economy.
• Systematically important banks are subject to higher capital requirements.