Bloomberg News

U.S. Banks Rise as CNBC Says Capital Surcharge May Be 2%

June 10, 2011

(Updates to add Bair’s comment in the sixth paragraph.)

June 10 (Bloomberg) -- Bank of America Corp. and Citigroup Inc. were among banks that climbed in New York trading after CNBC said the biggest lenders are more likely to face a 2 to 2.5 percentage-point surcharge on capital requirements rather than 3 percentage points.

Shares of Bank of America, which dropped as much as 2.3 percent earlier today, gained 1.4 percent to $10.80 at 4:15 p.m. in New York Stock Exchange composite trading. Citigroup, which had fallen 2.5 percent, advanced 0.4 percent to $37.92.

International central bankers and supervisors have decided banks need to hold more capital to avoid future taxpayer-funded bailouts. A proposed surcharge, previously reported to be 3 percent, may be lowered amid resistance from European nations, especially France, CNBC said without saying where it got the information. The amount may be set at a meeting in two weeks.

“The smaller the buffer, the better it’s going to be for bank shareholders,” said Jason Goldberg, senior analyst at Barclays Capital in New York. Amid a regulatory overhaul, banks are facing “a lot of headwinds out there. The industry hasn’t gotten a break in a while.”

Barbara Hagenbaugh, a spokeswoman for the Federal Reserve in Washington, declined to comment.

There’s a “good chance” that regulators will agree on a 3 percent buffer for the largest systemically important financial institutions, or SIFIs, Federal Deposit Insurance Corp. Chairman Sheila Bair said yesterday.

Surcharges for other SIFIs “will likely be tiered” below that amount, she said in a New York interview.

Shouldn’t ‘Overdo It’

Federal Reserve Bank of New York President William C. Dudley today said regulators shouldn’t “overdo it” on bank rules and Fed examiners shouldn’t be “too tough” on banks.

Jamie Dimon, JPMorgan Chase & Co.’s chief executive officer, pressed Federal Reserve Chairman Ben S. Bernanke in a public forum June 7 on whether overzealous regulation of the U.S. banking system may be endangering economic growth. Regulators worldwide are devising new capital requirements following unprecedented government bailouts of financial firms during 2008’s credit crisis.

“I have a great fear someone’s going to try to write a book in 20 years, and the book is going to talk about all the things that we did in the middle of the crisis to actually slow down recovery,” Dimon told the Fed chairman during a conference of bankers in Atlanta.

Most SIFIs are better prepared to hold 2 percent of extra capital on top of the 7 percent minimum -- for a total of 9 percent -- than they are to hold 3 percent, according to a May 6 research note by Bank of America’s Guy Moszkowski.

“U.S. SIFIs appear to be managing towards 8-9 percent” of core tier-1 capital under Basel III rules, Moszkowski wrote in the May note. “Some investors fear the U.S. may also implement tougher capital targets of 10 percent or higher. We believe this scenario is unlikely.”

--With assistance from Christine Harper and Caroline Salas Gage in New York. Editors: David Scheer, William Ahearn.

To contact the reporters on this story: Donal Griffin in New York at Dgriffin10@bloomberg.net.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.


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