Global regulators are considering a capital surcharge for the world’s largest banks that may force them to hold as much as three percentage points more reserves than other lenders, according to two people familiar with the discussions.
The Basel Committee on Banking Supervision is discussing forcing banks whose collapse would disrupt the global economy to surpass minimum standards agreed by world leaders in 2010. The levels under consideration range from more than one percentage point to as high as 3 percentage points of their common equity, said the people, who couldn’t be identified because the talks are private.
Governments and regulators are trying to avoid a repeat of the turmoil in financial markets that followed the 2008 collapse of Lehman Brothers Holdings Inc. and led to taxpayer-funded bailouts of lenders across the world. Switzerland has already proposed a surcharge for its two largest banks, UBS AG and Credit Suisse Group AG.
Sheila Bair, chairwoman of the U.S. Federal Deposit Insurance Corp., said she supports a 3 percentage point surcharge, which may bring the Basel group in line with the Swiss plans. “My personal view” is that “those are good numbers,” Bair said in a separate interview on March 22. The FDIC is a member of the Basel committee.
Deutsche Bank AG Chief Executive Officer Josef Ackermann yesterday criticized efforts to force the world’s biggest lenders to hold extra reserves.
Listing banks eligible for the surcharge would be based on “spurious criteria, which, in turn, will create incentives to manipulate such lists for political reasons,” Ackermann said in a speech in Frankfurt.
The Basel committee discussed the possible extra reserves at a meeting earlier this month, said the people familiar with the talks.
“We could have a good guess at which banks will be affected -- it’ll be the big ones,” Matthew Clark, an analyst at Keefe, Bruyette & Woods in London, said by telephone today. “Whether the surcharge will be meaningful or not depends on what types of instruments are eligible and the timeframe.”
The Swiss government has proposed raising the minimum common equity requirement for UBS and Credit Suisse to 10 percent from the 7 percent level set by the Basel committee.
“That sounded good to me,” said Bair, who steps down from her post at FDIC in June.
Leap Into ‘Unknown’
A 3 percentage point surcharge wouldn’t be “a leap into the unknown,” Nicolas Veron, senior fellow at Bruegel, a Brussels-based economics research group, said in a phone interview. The calculation of a surcharge is “ultimately a matter of judgment and a political decision,” he said.
The surcharge being considered by the Basel group is “not as high as it could have been,” Irina Sinclair, a lawyer at Allen & Overy LLP, said in an e-mail. “The elephant in the room is still what counts” as a systemically important lender and “the list of those lucky organizations.”
The Group of 20 nations asked the Basel committee in November to draft the extra requirements for banks deemed too big to fail. The Basel group brings together regulators from 27 countries including Brazil, China, India, Germany the U.K. and the U.S.
“Several of my colleagues on the Basel committee have referred to the Swiss proposals as a source of inspiration,” Mark Branson, head of banking supervision at the Swiss Financial Market Supervisory Authority, told journalists on March 22.
Increasing the Basel requirement by 1 percentage point is “just not worth it,” he said. “Certainly what’s being talked about at the moment is more than that.”
UBS may consider moving businesses and the holding company abroad, if the national surcharge advocated by the Swiss government leaves the bank uncompetitive, Chief Executive Officer Oswald Gruebel told Swiss magazine Bilanz in an interview this month.
The Financial Stability Board, which brings together regulators and G-20 finance ministries, has said that it will take decisions on both the size and the composition of the surcharge by the end of this year.