The list includes six insurance companies – Axa, Aegon, Allianz, Aviva, Zurich and Swiss Re – which sit alongside 24 banks from the UK, continental Europe, North America and Japan.
The list has been drawn up by regulators under the auspices of the Financial Stability Board, in an effort to preempt systemic risks from spreading around the world in any future financial crisis.
Insurers
Insurers are considered systemically important for a variety of reasons: they might, for example, have a large lending arm, such as Aviva, or a complex financial engineering business, akin to that of Swiss Re.
AIG of the US, the failed insurance group, was proven to be a vast systemic risk last year, in large part because of its diversification from insurance into complex financial engineering.
Raj Singh, chief risk officer of Swiss Re, said: “The real interconnectivity for the insurance industry is more muffled in that there needs to be a dual trigger for there to be any big systemic effects.”
The list, which is not public, contains many of the multinational bank names that would be widely expected.
The exercise follows the establishment of the FSB in the summer and is principally designed to address the issue of systemically important cross-border financial institutions through the setting up of supervisory colleges.
These colleges will comprise regulators from the main countries in which a bank or insurer operates and will have the job of better co-ordinating the supervision of cross-border financial groups.
As a spin-off from that process, the groups on the list will also be asked to start drawing up so-called living wills – documents outlining how each bank could be wound up in the event of a crisis.
Regulators are keen to see living wills prepared for all systemically important financial groups, but the concept has split the banking world, with the more complex groups arguing that such documents will be almost impossible to draft without knowing the cause of any future crisis.
Paul Tucker, deputy governor of the Bank of England, and head of the FSB working group on cross-border crisis management, said recently that the wills – also known as “recovery and resolution” plans – would have to be drawn up over the next six to nine months.
National regulators, led by the UK, are known to have begun pilot-testing the living wills exercise with some of the listed banks in the past few weeks.
