Systemically Important Credit Institutions
In relation to systemically important credit institutions, the CBCG first identifies other systemically important credit institutions (O-SICIs) and then it may specify buffer rates for O-SICIs. Provisions of the Law on Credit Institutions relating to Global Systemically Important Credit Institutions (G-SICIs) will apply following Montenegro`s accession to the EU.
O-SICis are those institutions whose “disruption in business operations or termination of business operations can lead to a systemic risk in Montenegro”. The CBCG determines them based on the Decision on Identifying Other Systemically Important Credit Institutions (OGM 127/20) and the methodology set down therein. The methodology is almost completely harmonised with the Guidelines of the European Banking Authority on identifying O-SICIs (EBA/GL/2014/10) and is based on the following four criteria: 1) size; 2) importance for the economy of Montenegro; 3) the importance of cross-border activities; and 4) connection to the financial system.
CBCG identifies O-SICIs once a year and posts the information on its website.
After that, the CBCG can prescribe a buffer rate for O-SICIs which aims to prevent and mitigate systemic risks arising from disruptions in the operation of credit institutions identified as O-SICIs. The introduction of additional capital requirements for O-SICIs increases their ability to absorb losses, which reduces the possibility of spreading instability to other credit institutions and, at the same time, reduces the probability of spending fiscal or other funds with a view to possible resolution of O-SICIs.
The buffer for O-SICIs is maintained in the form of Common Equity Tier 1 capital and it may range from 0% to 2% of the total amount of risk exposure.
The CBCG determines buffer rates for O-SICIs at least once a year and posts the information on its website.