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, according to a person familiar with the talks.
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. that the measures may stymie the financial system’s recovery, according to the person, who spoke on condition of anonymity because the talks are private.
Regulators at the meetings in Basel, Switzerland, instead agreed to make some technical changes to the criteria for measuring how systemically important a bank is, the person said. The levies would be applied to as many as 28 banks if the current proposals were in place, the Basel committee has said.
“What you can say is, they haven’t so much stood their ground as they haven’t capitulated to the banks,” said Edward Kane, a professor of finance at Boston College and a senior fellow at the Federal Deposit Insurance Corp.’s Center for Financial Research. “It would have been embarrassing if they had backed down, but we’re still waiting for the last act. They still haven’t told us how they’ll measure the capital or risk or if this will be one-size-fits-all for the banks.”
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., and Bank of America Corp. 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 committee declined to comment on the meetings.
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, 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.
“What they’re going to need to work on now is how to calibrate the risk in the banks,” said Boston College’s Kane. “That’s the measure of how much support the banks would get.”
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.