How it works
Other systemically important institutions (O-SIIs) are banks whose failure or distress would have an outsized impact on the domestic financial system or the wider EU economy, without necessarily being globally systemic. Competent or designated authorities identify O-SIIs each year using a harmonised assessment of criteria such as size, importance for the economy, complexity and cross-border activity, and interconnectedness with the financial system. The European Banking Authority issues guidelines to keep the methodology consistent across Member States while allowing national authorities to reflect domestic specificities.
Once an institution is designated an O-SII, the authority may require it to hold an additional buffer of Common Equity Tier 1 (CET1) capital. This O-SII buffer increases the institution's loss-absorbing capacity in proportion to the systemic risk it poses, and it forms part of the combined buffer requirement that sits on top of minimum own funds requirements.
Distinction from G-SIIs
The O-SII designation is the domestic counterpart to the global systemically important institution (G-SII) label. G-SIIs are identified through a global, indicator-based methodology and carry a G-SII buffer calibrated to their global systemic footprint, whereas O-SIIs are identified at national level and their buffers reflect systemic importance within a Member State or the EU. An institution can be both, in which case the higher of the applicable buffers generally applies. The O-SII assessment is a prudential, supervisory classification and is distinct from any assessment of resolution significance or public interest in resolution.
Legal basis
The O-SII framework is set out in the Capital Requirements Directive (CRD), Art. 131, which governs the identification of global and other systemically important institutions and the setting of the corresponding CET1 buffers. The buffer sits within the combined buffer requirement in CRD Arts. 128 and following, and interacts with the maximum distributable amount if the combined buffer is breached. The methodology is supplemented by European Banking Authority guidelines.
Practical relevance
For banks, an O-SII designation means a higher CET1 requirement and closer supervisory attention, and a breach of the combined buffer that includes the O-SII buffer restricts distributions such as dividends, coupons on Additional Tier 1 instruments and bonuses through the maximum distributable amount mechanism. For investors, the designation and the size of the buffer are a signal of an institution's assessed systemic importance and of the capital cushion it must maintain. The O-SII list is published and reviewed annually, so the population and buffer levels can change over time as banks grow, consolidate or restructure.