Financial Stability

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 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. On 1 January 2016, the Central Bank of Malta, in conjunction with the Malta Financial Services Authority (hereinafter 'the Authorities') introduced for the first time a Policy Document on a methodology for the identification of O-SIIs and the calibration of the related capital buffer, in line with the CRD/CRR framework.  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 additional capital buffers as per Statement of Decision, and as indicated in the table below:

Credit Institution

Bucket

Buffer rate

APS Bank plc

1

0.25%

MDB Group Ltd

2

0.50%

HSBC Bank Malta plc

4

1.50%

Bank of Valletta Group

5

2.00%