The world's largest, most complex and interconnected banks have become less systemically important relative to peers, according to a new report published by the Bank for International Settlements.
Using the Basel Committee on Banking Supervision's framework for identifying global systemically important banks, or G-SIBs, researchers found that the scores measuring their systemic importance have declined as regulatory proxies for their interconnectedness and complexity have diminished.
Under the framework, large banks around the world are indexed according to their size, cross-border lending and other factors. Institutions with high relative scores are put into tiers and subjected to escalating capital surcharges. "Since capital is costly, the surcharges encourage G-SIBs to reduce their systemic importance," the researchers wrote.
The researchers noted that there are important caveats to their findings, however, including the possibility that G-SIBs could exploit ways to take on risks that aren't adequately captured by regulators' scores.
Using a model that links large banks' financial characteristics and macroeconomic factors to previous episodes of distress — mostly during the financial crisis — the researchers also found that G-SIBs' probability of getting into trouble has declined, mostly because of thicker capital cushions.
"Weak profitability, however, has hindered further improvements in recent years," the researchers wrote.
The U.S.-based banks that are currently designated as G-SIBs are: Bank of America Corp., Bank of New York Mellon Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley, State Street Corp. and Wells Fargo & Co.
