Global regulators are poised to set a new tiered regime of additional capital requirements for about 30 of the world's biggest banks, in the latest effort to ensure the next financial crisis can be contained.
The regulators plan to place each institution into a "bucket" carrying a particular surcharge based on bank size, global reach, structural complexity and whether other banks could absorb its business. Banks could move between categories as their size, structure and risk appetite change.
At least eight banks — three from the US and five from Europe — are being targeted for capital surcharges of 2.5 per cent of their assets, adjusted for risk, on top of the 'Basel III' minimum of 7 per cent set by global regulators last year. The list is an informal effort to forge a global compromise and has not been formally circulated.
If the ideas are adopted, Citigroup, JPMorgan, Bank of America, Deutsche Bank, HSBC, BNP Paribas, Royal Bank of Scotland and Barclays would have to maintain core tier one capital ratios of 9.5 per cent, according to three people briefed on the discussions.
Goldman Sachs, Morgan Stanley, UBS and Credit Suisse would be in the next category down, facing a surcharge of 2 per cent and total minimum ratio of 9 per cent.
Another 10 to 15 banks are likely to face surcharges ranging from 0.5 to 2 per cent as part of the effort to make "global systemically important financial institutions" more resilient. These banks are considered so big and important to the global economy that they would probably have to be rescued by taxpayers if they got into trouble.
As drafted, there is an "empty bucket" above the highest tier that would carry a surcharge of at least 3 per cent. It is intended to serve as an "important deterrent" to risky behaviour.
People involved cautioned that the list remained fluid. Some countries have objected to an earlier formal proposal that would have imposed even higher surcharges.
Regulators are due to meet in Switzerland at the end of next week. Fierce lobbying is still going on and banks have been categorised using data that does not reflect some of their efforts to cut risk and shed assets. Banks that have shrunk dramatically – such as Citigroup and RBS – may shift downward.
Japanese and French negotiators are also fighting to keep Crédit Agricole, Société Générale, Mitsubishi UFJ, Mizuho and Sumitomo Mitsui out of the top categories, so their final positioning is unclear.
Regulators are still arguing about how much of the surcharge will have to be equity and to what extent contingent capital — bonds that convert to equity in a crisis — would be an acceptable substitute.
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