DETERMINING SYSTEMIC IMPORTANCE OF CREDIT INSTITUTIONS IN CAMEROON
Systemically important credit institutions in Cameroon are designated based on the risk their failure poses to the Cameroon financial system and the wider economy. Regulators evaluate institutions using specific criteria, including total assets, cross-border activity, interconnectedness, and substitutability, to set additional capital buffers and ensure financial stability.
To determine the systemic importance of institutions subject to weightings will be applied to each indicator used to identify systemic importance.
Each institution is assigned a score for each of the criteria and indicators, taking into account their relative weight in the banking system.
The scores obtained are then weighted and added together to obtain the final score.Systemic Importance is established from the distribution of the scores. Three levels of systemic importance are thus determined: high systemic importance, medium systemic importance and low systemic importance.Once a year, the Banking Commission draws up a list of systemic important institutions, indicating the level of systemic importance for each institution.
The Secretariat General of COBAC shall notify this decision to the institutions concerned and to the monetary authorities of the CEMAC States, with a copy to the Bank of Central African States and the Central African Financial Stability Committee. The decision adopting the list of systemic important institutions is published.When the subsidiary of a foreign banking group is qualified as being of systemic importance in the CEMAC, the Secretariat General of COBAC informs the banking supervisor of the country of origin or the jurisdiction where the head office of the group concerned is located of the systemic nature of the group in question, as well as the additional requirements to which it will be subject.An Instruction from the Chairman of COBAC sets out;
The composition of the various criteria for identifying systemically important institutions, the weightings and the methods for calculating of the scores;
The thresholds for defining the different levels of systemic importance.
Core Evaluation Framework for Systemic Importance
Regulators and the Central Banks typically assess institutions based on these primary criteria:
Size: An institution’s systemic importance is typically measured by its total assets or service volume. It earns the "too big to fail" classification when its potential collapse threatens to paralyze critical financial infrastructure and services.
Interconnectedness: Interconnectedness is measured by an institution's credit exposure, derivative counterparties, and integration into shared clearing services. Elevated institutional ties drastically increase the potential for cross-contagion, allowing financial distress to ripple rapidly through the broader market.
Substitutability: The lack of viable market substitutes during a failure further elevates an institution's systemic risk profile. When an entity commands a near-monopoly over critical financial plumbing (like settlement networks or clearinghouses), its collapse leaves a structural void that cannot be easily or rapidly filled by competitors.
Complexity: The intricacy of the institution's business model and operations.