Bloomberg News

FSB Backs Capital-Surcharge Plan for World’s Biggest Banks

October 03, 2011

(Updates with detail on over-the-counter derivatives rules starting in seventh paragraph.)

Oct. 3 (Bloomberg) -- The Financial Stability Board backed plans for the world’s largest banks to set aside additional capital and develop measures to wind down their operations in a crisis, the group’s chairman Mario Draghi said today.

Lenders whose collapse could roil global markets will face surcharges as high as 2.5 percentage points, Draghi said after a meeting of the FSB board in Zurich, Switzerland. The group also agreed more must be done to implement banker pay rules and acknowledged the international community would miss a deadline, set for the end of 2012, for tougher regulation of over-the- counter derivative markets, Draghi said.

A study carried out by the Bank for International Settlements showed the expected macroeconomic impact of the capital surcharge plans is “very limited on GDP growth,” Draghi said. Any reduction in growth would be “outweighed by the benefits that the system would derive from having stronger banks.”

Bank watchdogs have clashed with some lenders over the additional capital requirements, which were released for public comment in July. Jamie Dimon, chief executive officer of JPMorgan Chase & Co., and Bank of America Corp. CEO Brian T. Moynihan, are among bankers who have said the proposals would constrain lending and hurt the economy. Dimon, 55, has said that the U.S. should consider withdrawing from the Basel committee and that the rules it sets are “anti-American.”

Basel III

Svein Andresen, secretary general of the FSB, said the U.S. will “very shortly” propose measures to implement proposed global capital rules, known as Basel III.

While regulators will in overall terms fail to meet the deadline for implementing the derivatives rules, authorities should try and meet the target date in “as many areas as possible,” the FSB said in a statement on its website.

The measures, which would require derivatives trades be passed through clearinghouses and logged in trade repositories, should continue to apply even when instruments that were deemed to be over-the-counter lose that status because they start to be traded on exchanges, Draghi said.

The U.K. has clashed with other governments in the 27- nation European Union over whether the implementation of the rules should be applied to trades that don’t take place over- the-counter, with the country arguing for broader application of the measures.

The FSB coordinates the work of national regulators from the Group of 20 nations and sets tasks for global standard- setting organizations such as the Basel Committee.

The FSB’s decision to back the capital surcharges mirrors a decision last week by the Basel group, which had been tasked with preparing the plans.

“Further improvements in methodology and data” will be made before the measures come into effect, Draghi said. The rules will be phased in between 2016 and the end of 2018.

The FSB also reviewed plans to “strengthen the oversight and regulation” of shadow banking, the board said.

--With assistance from Leigh Baldwin and Klaus Wille in Zurich. Editors: Christopher Scinta, Peter Chapman

To contact the reporters on this story: Jim Brunsden in Basel at;

To contact the editor responsible for this story: Anthony Aarons at

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