Regulators Update Big Bank Capital Surcharge List

WASHINGTON - The Financial Stability Board released its updated list of globally significant banks subject to higher capital charges on Thursday, detailing what surcharge institutions will face.

The list was essentially unchanged from last year's, but will carry more weight because it is the first to have a binding effect.

The list of globally systemically important banks, or G-SIBs, is made up of the world's largest and most internationally integrated banks as determined by a Basel Committee on Banking Supervision methodology that assesses bank risk based on several criteria, including complexity, cross-jurisdictional activity and interconnectedness.

Banks on the list are assigned to different "buckets" based on risk and face a capital surcharge of anywhere between 1.0% to 2.5% depending on where they're placed. The FSB may assign capital charges up to 3.5%, though that designation has not yet been used and is largely seen as a deterrent to keep banks from becoming more complex.

In 2011, the Basel Committee published a phase-in plan for the G-SIB list that required the capital surcharges to be implemented beginning in January 2016. But those charges will only apply to banks on Thursday's list.

Despite its importance, this year's list is virtually unchanged from last year's. JP Morgan Chase and HSBC remain the only two banks in the 2.5% bucket, while only one American bank, Citigroup, is in the next-highest 2% bucket. FSB added one bank, the Agricultural Bank of China, to the list of 30 G-SIBs, placing it in the lowest 1% bucket. Switzerland's UBS and France's Group Crédit Agricole, meanwhile, moved from the 1.5% bucket to the 1% bucket.

The FSB-mandated capital surcharges will likely not represent the true capital costs that large banks will face, at least in the U.S. Federal Reserve Board Gov. Daniel Tarullo told the Senate Banking Committee last month that the central bank is contemplating higher surcharges than the international standard. That higher standard is likely going to be linked to banks' reliance on wholesale financing, Tarullo said.

Jaret Seiberg, a senior policy analyst with research group Guggenheim Securities, said in a note to clients today that the Fed's silence on its own rules was surprising, since the international regulator's publication of its list would have been an opportune time to release its own capitalization proposal.

"Our expectation had been for the Federal Reserve to clarify this policy at the same time that Basel released the updated SIFI bucket allocations," Seiberg said. "This is the SIFI surcharge list that matters."