Systemically Important Institutions
The capital buffer for Other Systemically Important Institutions (O-SII) is aimed at mitigating the vulnerability of the domestic financial system and the real economy to the failure of systemically important institutions. The O-SII buffer consists of a capital surcharge applied to institutions that may, in the event of failure or impairment, have considerable impact on the domestic financial system and the real economy. This additional capital buffer is applied to domestic systemically important institutions to increase their resilience by bolstering their loss absorbing capacity and thus ensuring that they pose minimal risk to the domestic economy in the form of externalities. Market failures targeted by the O-SII capital buffer mainly relate to the excessive risk-taking due to expectations of a bailout as a result of the perceived systemic relevance of an individual institution (moral hazard and 'too big to fail').
The O-SII capital buffer is a macroprudential tool legally embedded in the CRD/CRR framework which, in turn, has been domestically transposed in Central Bank of Malta (CBM) Directive No. 11 and Malta Financial Services Authority (MFSA) Banking Rule 15. As per the revised Policy Document, the Authorities decided to revise and update the 2016 O-SII Methodology with effect from January 2020 to better reflect the developments in the domestic financial sector and also to further align the domestic O-SII methodology with the EBA Guidelines in relation to the assessment of O-SIIs (EBA/GL/2014/10).
The Authorities under the auspices of the Joint Financial Stability Board, and following consultation with the European Central Bank, identified four banks as O-SIIs and requested them to hold O-SII capital buffers as per 2025 Statement of Decision, and as indicated in the table below:
|
Credit Institution
|
Bucket
|
Buffer rate
|
|
APS Bank plc
|
2
|
0.50%
|
|
MDB Group Limited
|
3
|
1.00%*
|
|
HSBC Bank Malta p.l.c.
|
4
|
1.25%**
|
|
Bank of Valletta plc
|
5
|
2.00%
|
* Refer to section 1.1 of the Statement of Decision for considerations in relation to MDB Group Limited’s O-SII buffer rate.
**HSBC Bank Malta plc qualifies for the provisions of Article 131(8) of CRD, which results in the capping of its 1.50% (bucket 4) O-SII buffer rate to 1.25% (refer to section 1.2 of the Statement of Decision for more details).
Date last updated: 8 August 2024