Global regulators will stick to planned capital surcharges of as much as 2.5 percent for the world’s biggest banks while adjusting how the levies are calculated.
The Basel Committee on Banking Supervision decided against changing the surcharge levels during talks today and yesterday amid criticisms from banks including BNP Paribas SA and Citigroup Inc. (C) that the measures may stymie the financial system’s recovery. Regulators at meetings in Basel, Switzerland, also agreed to accelerate work on a minimum liquidity rule to provide “greater market certainty.”
Regulators “agreed to retain the proposed calibration for the additional loss absorbency requirement, which will range from 1 percent to 2.5 percent,” the committee said in a statement on its website. The group proposed making “some changes to certain indicators to improve the methodology for identifying” what size of levies individual banks should face.
Bank watchdogs have clashed with some lenders over the additional capital rules, which were released for public comment in July. Jamie Dimon, chief executive officer of JPMorgan Chase & Co. (JPM), and Bank of America Corp. (BAC) CEO Brian T. Moynihan, 51, are among bankers who have said that 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.”
The Basel group said that it was speeding up work on the minimum liquidity rule in order to “provide greater market certainty about the final technical details and calibration” of the measure.
Work on “key areas” of the liquidity rule, which will require banks to hold enough easily sellable assets to survive a 30 day credit crunch, will now be completed “well in advance of the mid-2013 deadline” for finalizing the standard, the committee said. The LCR is scheduled to take effect from Jan. 1 2015.
The Basel group brings together bank regulators from 27 countries including the U.S., U.K. and China, to set international standards for lenders.
BNP Paribas (BNP), France’s biggest bank, said in its response to the Basel consultation that the surcharge proposals should be put on hold indefinitely. The plans could discourage banks “from facilitating global trade,” Citigroup said in its submission.
The Basel group anticipates phasing in the surcharges between 2016 and the end of 2018.
“My concern is that banks generally go under because of liquidity problems, not a shortage of capital,” said Charles Peabody, an analyst with Portales Partners LLC in New York. “Capital won’t save you in a crisis, it’s usually liquidity.”
Under the surcharge proposals, lenders whose failure could send shock waves throughout the financial system would face stricter minimum capital requirements of 1 to 2.5 percentage points of core reserves. This would be on top of an already- announced tripling in the amount of core capital that all internationally active banks must hold.
The levies would be calculated using a methodology based on banks’ size, interconnectedness, complexity, global reach, and the ability of other firms to take over lenders’ functions if they fail.
The Financial Stability Board, includes regulators, central bankers and financial-ministry officials from the Group of 20 countries, has said that work on the surcharge rules should be finished in time for them to be approved at a summit of leaders from the G20 in Cannes, France, on Nov. 3-4.
The FSB last year instructed the Basel committee to draw up the rules. The FSB next meets on Oct. 3.
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