Citigroup Leads U.S. Banks Higher in Global System Risk List

  • Bank of America, Wells Fargo see capital surcharge increase
  • Financial Stability Board releases systemic-importance ranking

Global banking regulators said some U.S. lenders present a bigger risk to the financial system than last year and should face stiffer capital requirements to ward off threats.

Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. all face higher capital surcharges after they rose in the Financial Stability Board’s latest ranking of the most systemically important banks in the world. Meanwhile, New York-based Morgan Stanley and London-based lenders HSBC Holdings Plc and Barclays Plc saw their buffer levels fall, the FSB said in a statement on Monday.

HSBC’s capital surcharge falls to 2 percent of risk-weighted assets from 2.5 percent, while Citigroup’s buffer rises to 2.5 percent from 2 percent, the FSB said. Barclays surcharge falls to 1.5 percent from 2 percent; Wells Fargo rises to 1.5 percent from 1 percent; and the Industrial and Commercial Bank of China surcharge rises to 1.5 percent from 1 percent.

The drop in HSBC’s surcharge is positive for the lender and “further enhances the capital return prospects” in the long term, Citigroup analysts said in a note.

The FSB’s list is headed by Citigroup and JPMorgan Chase & Co.

Citigroup said in a statement that its rise in the FSB list “does not drive a binding capital constraint” on the bank, and that it’s already subject to a stiffer 3 percent surcharge imposed by the U.S. Federal Reserve.

Complex Risks

Banking regulators moved after the 2008 credit crisis to increase capital levels across the industry as well as to impose surcharges for lenders deemed to present the biggest and most complex risks to the financial system. The extra capital requirements for systemically important lenders began to take effect in 2016 and are reviewed annually. The new levels announced on Monday apply starting in 2018.

The FSB, which is led by Bank of England Governor Mark Carney, coordinates oversight of the most globally systemic banks, while the capital surcharges are implemented by national authorities that are members of the board. The 30 banks on the list are also subject to bank-failure rules, known as total loss-absorbing capacity, that the FSB adopted last year. The TLAC requirements are meant to protect against taxpayers having to bail out failed banks.

Representatives for Barclays, HSBC and Wells Fargo declined to comment on the change. Spokespeople for the other banks that saw their ranking change didn’t immediately reply to requests for comment.

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