The world's biggest banks face a capital surcharge of up to 3 per cent in a bid to keep taxpayers off the hook next time a lender gets into difficulty, Bundesbank and industry officials said today.
A larger surcharge of 3.5 per cent would be imposed if a bank grew significantly and as a result posed larger systemic risks, banking sources told Reuters.
The Financial Stability Board, tasked by the world's top 20 economies (G20) to toughen up financial rules, meets on July 18th to finalise its blueprint.
Before then regulators will hold a series of preparatory meetings to iron out elements of the capital surcharge plan that are still being contested even though many top banks already hold capital in line with the top end of the planned surcharge.
"No final decision has been made," a source familiar with the talks said. "It's still very fluid.”
The basic structure, however, is set be in line with what regulators and bankers have been saying over the past year.
Bundesbank board member Andreas Dombret said today that 25 to 30 of globally systemically important financial institutions "will in all likelihood" have to hold 2 to 3 percentage points more capital than others.
"Such capital add-ons do more than merely improve the resilience of a SIFI, in other words reduce its probability of failure," Mr Dombret said in a speech.
"They surely are also a suitable instrument with which to put a price tag on the implicit guarantee that SIFIs are deemed to enjoy.”
The blueprint is about a year behind schedule due to bickering among G20 countries over whose banks will be deemed G-SIFIs, and whether other measures, also in the blueprint, such as effective wind-up mechanisms could be a substitute for surcharges at some banks.
International Monetary Fund researchers said this month the surcharge should be significantly more than the 1-3 per cent being worked on but banks say regulators should look at the cumulative impact of all the new rules on banks.
A top British regulator has signalled that total core capital of around 15 per cent is best in an ideal world, some 5 per cent above where UK banks are now.
Switzerland wants its two biggest banks UBS and Credit Suisse to hold core equity capital of 10 per cent and a further 9 per cent in hybrid debt known as contingent capital.
Initially the surcharge will apply only to the biggest banks such as Goldman Sachs, HSBC, Deutsche Bank and Morgan Stanley.
Other big institutions whose collapse could destabilise the wider financial system, as did the demise of Lehman Brothers in 2008, would be brought under the net later on in the teeth of fierce lobbying from big insurers.
The surcharge will depend on criteria regulators have already outlined, such as how interconnected the bank is to the rest of the financial system and how easily its operations could be substituted by another lender.
It remains unclear when the capital surcharges would kick in, but many of the biggest banks already hold capital at these levels due to pressure from local supervisors in countries like Switzerland, Britain and the United States.
"I think the British banks are already there. The bigger issue is going to be liquidity as banks are even more concerned about this," said Simon Hills, a director at the British Bankers' Association.
Reuters
