Bloomberg News

FSB Said to Weigh Shorter List of Too-Big-to-Fail Banks

October 05, 2012

Regulators Said to Weigh Shorter List of Too-Big-to-Fail Banks

Citigroup Inc., JPMorgan Chase & Co., BNP Paribas SA , Royal Bank of Scotland Group Plc, and HSBC Holdings Plc were provisionally earmarked to face the top level of surcharges, set at 2.5 percent of risk-weighted assets. Photographer: Chris Ratcliffe/Bloomberg

Global regulators may trim their list of 29 too-big-to-fail banks earmarked for capital surcharges, according to two people familiar with the talks.

The Financial Stability Board is scheduled to agree on an update of the list at a meeting next week in Tokyo, according to the people, who asked not to be identified because the talks aren’t public. The list may be revised because the potential failure of some of the lenders is no longer deemed to pose a threat to the world economy and because others have restructured, the people said.

The FSB last year published a list of 29 so-called globally systemic banks that should have to hold more capital than required by other international agreements. Citigroup Inc. (C:US), JPMorgan Chase & Co. (JPM:US), BNP Paribas SA (BNP), Royal Bank of Scotland Group Plc (RBS), and HSBC Holdings Plc (HSBA) were provisionally earmarked to face the top level of surcharges, set at 2.5 percent of risk- weighted assets.

“Policymakers are grappling with raising bank capital levels and reducing the risks in the financial system without trying to choke off economic growth,” said Huw Van Steenis, head of European banking analysis at Morgan Stanley (MS:US), which is also on the list of 29 lenders.

One of the banks that is almost certain to drop off the updated list is Dexia SA (DEXB), the Franco-Belgian lender that is being broken up after losing access to unsecured funding, said Karel Lannoo, chief executive officer of the Centre for European Policy Studies in Brussels.

Balance Sheets

“There might be two or three others” in a similar situation, he said. Still, “total balance sheets remain enormous” at the very largest banks, Lannoo said.

The Basel Committee on Banking Supervision prepared a draft update of the list at a meeting last month in Istanbul, according to the people. Its proposals will now be weighed by the FSB at its Tokyo meeting, which takes place on Oct. 10 and Oct. 11.

The possible slimming down of the list is a result of restructuring at some lenders in return for public bailouts, and shifts in banks’ strategies, the people said.

They declined to say which banks might be removed, as the plans still need to be reviewed. The updated list will be sent for endorsement to finance ministers and central bank chiefs from the Group of 20 nations, who are scheduled to meet next month.

Shadow Banks

The FSB said last year that regulators would update the list on an annual basis, with each revision to be published in November. The first version that will determine which banks face a surcharge will be the one published in 2014.

The FSB will also assess nations’ progress in regulating over-the-counter derivatives and discuss rules for shadow banks at the Tokyo meeting, said the people.

The FSB brings together central bankers, regulators and government officials from G-20 nations to coordinate financial rulemaking.

The capital surcharges for systemic banks come on top of agreements by the Basel committee to more than triple the core reserves that lenders have to hold against possible losses. These so-called Basel III rules are intended to apply to all internationally active banks, and are scheduled to fully apply from 2019.

Large international lenders would have faced a 374.1 billion euro shortfall ($486.6 billion) in the capital needed to meet Basel III had it been in force at the end of 2011, according to data published by the Basel group last month. The figure factors in the surcharges for globally systemic banks.

To contact the reporter on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net

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


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