Bloomberg News

Basel Regulators to Disclose Banks Facing Capital Surcharges

November 07, 2011

Nov. 4 (Bloomberg) -- Global regulators seeking to shore up the financial system after the credit crunch of 2008 led to taxpayer bailouts will announce today which banks will have to hold extra capital buffers.

The Basel Committee on Banking Supervision is scheduled to release a list of so-called global systemically important institutions following the Group of 20 meeting in Cannes, France, today. Banks covered by the measures face requirements to boost their reserves by between 1 and 2.5 percent compared with international capital rules published last year.

While the committee has issued estimates of the number of 29 or so lenders that will be affected, it hasn’t identified them, leaving analysts to hazard their own guesses. HSBC Holdings Plc, Citigroup Inc., Deutsche Bank AG and BNP Paribas SA may face the highest surcharges, Morgan Stanley said in June.

“I would not expect too many surprises on the list and I believe that it will be basic,” said Markus Heidinger, a partner dealing with financial regulation at law firm Wolf Theiss in Vienna. The exact surcharges applied to each bank will be “probably left to national regulators” to disclose.

A German official said this week that the list of 29 banks will be published at the end of the G-20 meeting. The higher surcharges are part of measures designed to safeguard banks against another financial crisis.

JPMorgan, Barclays

Other lenders in the 2.5 percent bracket include Bank of America, JPMorgan Chase & Co., Barclays Plc and Royal Bank of Scotland Group Plc, Morgan Stanley said at the time. Since then the Basel committee has published a draft version of its method for calculating the additional requirements, which it amended at a meeting in September.

“We think Europe’s largest banks such as Deutsche Bank, Barclays and BNP are likely to still be in the highest G-SIFI category alongside the largest U.S. banks, although the tweaks in the methodology may enable a few European banks to go down one notch,” Morgan Stanley analyst Huw van Steenis, an author of the June report, said in an e-mail.

Bank watchdogs have clashed with some lenders over the plans, which they have warned could lead them to cut lending and support to international trade. Jamie Dimon, chief executive officer of JPMorgan, has said that the U.S. should consider withdrawing from the Basel committee and that the rules it sets are “anti-American.”

“The size of the likely surcharges is bound to be subject to further intense discussion between the institutions and their regulators,” said Richard Reid, director of research for the International Centre for Financial Regulation.

Basic List

Under the plans, lenders will face surcharges based on their size, interconnectedness, complexity, global reach, and the ability of other firms to take over lenders’ functions if they fail. The extra requirements, to be met with core capital, will be phased in between 2016 and the end of 2018.

“There will be questions” as to “how easily and frequently institutions may move in and out of the list” and on the potential for other institutions to enter the top bracket, Reid said. “Such uncertainty can only add to investors’ caution.”

The list is expected to be published alongside an updated version of the Basel committee’s method for calculating the surcharges and proposals from the Financial Stability Board for winding down lenders.

The Basel committee brings together bank regulators from 27 countries including the U.S., U.K. and China, to set international standards for lenders. The FSB includes regulators, central bankers and financial-ministry officials from the G-20.

--Editors: Anthony Aarons, Frank Connelly

To contact the reporters on this story: Jim Brunsden in Basel at jbrunsden@bloomberg.net;

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.


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