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Federal Reserve Bank of New York President William Dudley said Friday a surcharge on the world’s most important firms is necessary to avoid any potential future failures.
September 23 -
American banks aren't the only ones protesting a capital surcharge on systemically important institutions.
September 8
WASHINGTON — The Basel Committee on Banking Supervision on Wednesday stood by its decision to maintain its proposed surcharge on the world's most important firms.
The committee's announcement following a two-day meeting in Basel, Switzerland with global regulators provided little relief to banks both here and abroad who had been lobbying forcefully to get the charge eliminated.
Instead, the committee said it would keep its proposed capital surcharge in a range of 1% to 2.5% based on a bank's level of systemic risk, as well as 3.5% bucket that would be used to discourage firms from becoming even more systemically important than they already are.
The biggest U.S. firms led by JPMorgan & Chase Co. and Citigroup Inc. have been pressing on U.S. regulators publicly not to move ahead with the surcharge, saying the fee is excessive on top of other capital standards already being required. Jamie Dimon, the chief executive officer of JPMorgan, recently went so far as to call the charge "anti-American," and suggest the U.S. pull out of Basel III.
Even so, U.S. regulators have argued the surcharge will do much to help curb systemic risk and minimize the shock a failure would have on the financial markets.
A study by the Clearing House said that U.S. banks will have to raise another $200 billion in common equity above the increased capital requirements called for under the Basel III agreement.
Still, regulators did appear to hear some concerns voiced by the roughly two dozen firms affected the proposal.
The committee agreed to make certain changes to improve how institutions would be identified as globally systemically important institutions. One of the primary complaints made by firms was that regulators largely focused on size above other criteria.
Regulators agreed to come out with new guidelines ahead of the Group of 20 nations meeting in November in Cannes, France.
Additionally, they agreed to accelerate the observation period of the liquidity coverage ratio, which extends until mid-2013, to make any necessary adjustments.
By doing so, the committee said it hoped to ease market concerns.
"This accelerated process should provide greater market certainty about the final technical details and calibration of the LCR," the committee said in a press release.
They also agreed to continue to work on a separate liquidity requirement — the net stable funding ratio — during the same observation period.
Separately, regulators said they discussed introducing capital requirements for banks' exposures to central counterparties. It will issue the changes in coming weeks.
"The objective is to promote greater use of CCPs while ensuring the banks are appropriately capitalized against the exposures they face," the committee said.
In order to ensure that all parties were implementing Basel III, the committee put into place a framework to monitor progress of the 27-member body. Information collected will be published in a report and updated routinely, the committee said.
It will also review legislation and regulations at each of the countries to identify any differences to maintain a level playing field.
