Three of the country's biggest banks will be required to increase their capital buffers come January, according to a new analysis of regulatory data.
Citigroup, JPMorgan Chase and Goldman Sachs will each see their surcharges increase by 50 basis points, Barclays analysts found. Starting on Jan. 1, Citi, JPMorgan and Goldman will have surcharges of 3.5%, 3% and 4%, respectively.
In addition, JPMorgan, Goldman and Bank of America are on track for 50-basis-point increases in 2024, according to the Barclays report, which analyzed third-quarter systemic risk reports from global systemically important banks.
The increases expected next year are based on the banks' balance sheets at the end of 2020, when an influx of customer cash from government stimulus programs
Higher surcharges stand to make loans more expensive for borrowers because larger capital buffers require banks to fund their loans with bigger amounts of capital. It costs banks more to fund loans with capital than with deposits.
The Federal Reserve began assessing GSIB surcharges in the aftermath of the 2008 financial crisis. Regulators see the enhanced capital standards for larger banks, which are in addition to the capital buffers required of all banks, as a way to compensate for the larger impact the collapse of one of these big banks would have on the financial system.
In the U.S., eight banks are in the GSIB category: BofA, Citi, JPMorgan, Wells Fargo, Goldman, Morgan Stanley, State Street and Bank of New York Mellon. There are 30 such banks around the world.
Overall, banks have managed to decrease their GSIB scores in recent quarters by shrinking on- and off-balance-sheet exposures and reducing derivatives activity, the Barclays analysts said. After reaching a high in the first quarter of 2022, Barclays' composite measure of surcharges fell by 3.4% in the second quarter, its largest decrease since the end of 2018.
A number of factors determine a bank's GSIB score, including its size, complexity and exposure to financial counterparties like investment managers, insurance companies, brokers or other banks.
Surcharges typically increase alongside economic growth, said Francisco Covas, head of research at the Bank Policy Institute, an industry group that represents many of the nation's largest banks.
"An economy that generates more GDP will necessarily borrow more, will require more funding, so the GSIB surcharge is tied to economic growth," Covas said.
The central bank in 2015 said it would periodically reevaluate the GSIB framework to make sure "factors unrelated to systemic risk" don't affect the systemic indicator scores of bank holding companies.
Earlier this month, Michael Barr, the Federal Reserve official in charge of bank supervision, told Congress he was "taking a holistic look at the GSIB surcharge" to determine whether it's functioning as regulators intended and whether it supports a resilient financial system. Barr also said the Fed was reviewing other capital and liquidity requirements including stress testing, the enhanced supplementary leverage ratio and the countercyclical capital buffer.
"Robust capital and liquidity requirements make it more likely that banks are able to absorb losses and continue their vital role supporting households and businesses," Barr said. "This is especially important for the largest and most complex banks, which pose the greatest risk to U.S. financial stability."
