In line with emerging best practices, the State Bank of Pakistan (SBP) has developed a framework for designation and supervision of Domestic Systemically Important Banks (D-SIBs).
This framework will applies to all banks regulated by the SBP with objectives to enhance resilience of the systemically important banks in Pakistan through strengthening the prevailing regulatory and supervisory regime for these banks.
According to the SBP, the D-SIBs framework specifies the methodology for identification and designation of D-SIBs, enhanced regulatory and supervisory regime and implementation guidelines. Under the framework, the SBP would identify the sample of D-SIBs and announce designation by the end June each year.
Global financial crisis has highlighted the importance of enhanced supervision of systemically important financial institutions. Accordingly, the standard setting bodies and supervisors across the globe are continuously reviewing the supervisory frameworks and reshaping supervisory policies for enhancing resilience of the systemically important banks.
Therefore, in line with emerging best practices, particularly the indicator based approach of Basel Committee of Banking Supervision (BCBS), the State Bank has issued a framework for designation and supervision of D-SIBs.
The SBP BPRD Circular No 04 of 2018 has revealed that the designated D-SIBs will be required to meet both higher loss absorbency requirements and enhanced supervisory requirements. Remaining banks in the sample of D-SIBs will only meet the enhanced supervisory requirements.
First designation of D-SIBs will be made by end June 2018. The designated D-SIBs will be required to meet the enhanced regulatory and supervisory requirements by end March 2019.
The need for enhanced supervisory focus on 'Systemically Important Financial Institutions' (SIFIs) gained attention in the wake of Global Financial Crisis of 2007-08. In November 2011, the BCBS issued a "Global Systemically Important Financial Institutions (G-SIFIs) framework" for enhancing the resilience of large financial institutions, active internationally.
Later, in October 2012, the framework was extended to Domestic Systemically Important Banks (D-SIBs) with the realization that some banks might not be big enough to cause disruptions in the global economy but owing to their significant size and nature of business for domestic economy, their failure may jeopardize the overall financial stability of a country.
Keeping in view the indicator based approach of the BCBS and the local regulatory and supervisory requirements in perspective; State Bank of Pakistan (SBP) has developed framework for designation and supervision of D-SIBs. The SBP has warned that non-compliance with enhanced regulatory and supervisory requirements will attract punitive action under the relevant laws.