Deutsche Bank, BNP Among 29 Banks Facing FSB Capital Buffer
November 06, 2011, 6:24 PM EST
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By Jim Brunsden and Rebecca Christie
(Updates with comments from bank-group analyst starting in sixth paragraph.)
Nov. 4 (Bloomberg) -- Deutsche Bank AG, BNP Paribas SA and Goldman Sachs Group Inc. are among banks that must hold additional capital buffers ranging from 1 to 2.5 percentage points under plans approved today by the Group of 20 nations.
A total of 29 lenders may have to meet the requirements, according to a provisional list published by the Financial Stability Board. The measures were agreed on by regulators to prevent any so-called systemically important financial institution from failing and roiling the global economy. The list doesn’t specify the exact surcharges banks may face.
Systemically important banks need “higher capital requirements which will reflect the cost of their possible failure,” Mario Draghi, the FSB’s chairman, told reporters in Cannes, France.
Bank watchdogs have clashed with some lenders including HSBC Holdings Plc, Citigroup Inc. and BNP over the plans, with the banks warning they could cause them to cut lending or support to international trade. The Basel Committee on Banking Supervision, which drafted the surcharge plans, in September rejected calls to scrap additional capital buffers, instead agreeing to changes to how it calculates them. The measures were published today after approval by Group of 20 leaders in France.
Nomura, Lloyds
Nomura Holdings Inc. and Spain’s Banco Bilbao Vizcaya Argentaria SA, which were both included in a list of 25 SIFIs published by Morgan Stanley analyst Huw van Steenis in June, escaped the FSB’s list. Lloyds Banking Group Plc, which Steenis didn’t expect to make the regulator’s list, did.
“The list in general is not a big surprise, if you look at who are the world’s top 30 banks,” Irving Henry, a director at the British Bankers’ Association, said in an interview. “It’s interesting that there is no Standard Chartered, although this may be because it’s not big in the U.K.”
“It’s also surprising that there is no Nomura,” he said.
The surcharges will be applied on top of an overhaul of bank-capital requirements that international regulators agreed on last year. Those changes, known as Basel III, will more than triple the core reserves that lenders must hold.
The additional buffers mean lenders may face core capital requirements of as much as 9.5 percent of assets, weighted on risk. At least four banks face the top surcharge of 2.5 percent, according to provisional data published today by the Basel Committee, which didn’t specify any individual lenders.
U.S. Banks
Goldman Sachs and JPMorgan are among eight U.S. banks on the list. David Wells, a spokesman for Goldman Sachs in New York, and Howard Opinsky, a JPMorgan spokesman, declined to comment. Jeanmarie McFadden, a spokeswoman for Morgan Stanley, which is included, also declined to comment.
Societe Generale SA and Credit Agricole Groupe are also among four French lenders included on the list. Deutsche Bank and Commerzbank AG are the two German lenders, while four U.K. banks, including HSBC Holdings Plc and Royal Bank of Scotland Group Plc face the surcharges.
Armin Niedermeier, a spokesman for Deutsche Bank, said the company’s inclusion on the list was expected. Reiner Rossmann, a spokesman for Frankfurt-based Commerzbank, declined to comment.
The list was dominated by European and U.S. banks, which was expected, Richard Reid, research director for the International Centre for Financial Regulation, said.
9 Percent
Some banks in the European Union already face requirements to hold 9 percent in core reserves, after sovereign-debt writedowns, under plans adopted by EU regulators in response to the Greek financial crisis. Banks will need to raise 106 billion euros ($145.9 billion) in fresh capital to meet the rules, the European Banking Authority estimated.
The definition of what banks can count as capital to meet the Basel surcharges is stricter than that used by the EU, which allows lenders to use some contingent convertible instruments to meet the 9 percent threshold. The extra requirements are calculated against banks’ interconnectedness, size, complexity, global reach, and the ability of other firms to take functions if they fail.
Four Asian banks, including the Bank of China and Mitsubishi UFJ Financial Group Inc. in Japan, also face the additional capital requirements from the Basel Committee.
Dismembered
“I am a bit surprised to see Bank of China, but maybe we are so Euro-American centric that we don’t recognize how big other banks are,” Henry said. “I was also surprised to see Dexia because it’s being dismembered.”
The extra capital requirements will be phased in from 2016 through 2018. They will have to be met with core Tier 1 capital, a definition of banks’ reserves which includes mainly ordinary shares and retained earnings. Banks that can’t meet the rules face restrictions on dividends and bonus payments.
The surcharge plans were approved by the G-20 in tandem with measures to ensure the orderly winding down of failed banks and to shield taxpayers.
‘Moral Hazard’
The measures “are aimed at reducing moral hazard so we can deal with failures of large institutions without, hopefully, having market disruption and without having to use public money,” Draghi said.
The plans also include requiring systemically important lenders to draw up so called living wills, showing how they could be wound down should they fail.
ING Groep NV’s inclusion one of the 29 banks was “in line” with expectations, said Carolien van der Giessen, a spokeswoman for the bank. Wells Fargo & Co., Citigroup, Unicredit Spa, and Santander, which were all also on the list, declined to comment. UBS AG and Credit Suisse Group AG representatives couldn’t immediately be reached for comment.
Lower Ratios
“From the European perspective, we also had BBVA, Intesa and possibly Standard Chartered on our list,” said Andrew Stimpson, an analyst with Keefe Bruyette & Woods Inc. in London. “The question is whether it really matters given that the national regulators are unlikely to allow banks to operate with lower capital ratios given that they are systemically important regionally and in Europe if not globally.”
The list of surcharge banks will be updated each November, using fresh data. The banks that will initially face the extra requirements will be those contained in the version of the list published in November 2014.
“Some of the omissions” from the list “reflect that the method for calculating the surcharges is too focused on size rather than interconnectedness,” Henry said. “The list should, or ought to, change as Euro-American banks evolve and big players rise from the emerging markets.”
Banks in the future could face surcharges of up to 3.5 percentage points if they grow bigger or more systemically important, the FSB said.
Provisional FSB List of G-SIFIs
November 06, 2011, 6:24 PM EST
inShare4Business Exchange E-mail Print More From Businessweek
By Jim Brunsden and Rebecca Christie
(Updates with comments from bank-group analyst starting in sixth paragraph.)
Nov. 4 (Bloomberg) -- Deutsche Bank AG, BNP Paribas SA and Goldman Sachs Group Inc. are among banks that must hold additional capital buffers ranging from 1 to 2.5 percentage points under plans approved today by the Group of 20 nations.
A total of 29 lenders may have to meet the requirements, according to a provisional list published by the Financial Stability Board. The measures were agreed on by regulators to prevent any so-called systemically important financial institution from failing and roiling the global economy. The list doesn’t specify the exact surcharges banks may face.
Systemically important banks need “higher capital requirements which will reflect the cost of their possible failure,” Mario Draghi, the FSB’s chairman, told reporters in Cannes, France.
Bank watchdogs have clashed with some lenders including HSBC Holdings Plc, Citigroup Inc. and BNP over the plans, with the banks warning they could cause them to cut lending or support to international trade. The Basel Committee on Banking Supervision, which drafted the surcharge plans, in September rejected calls to scrap additional capital buffers, instead agreeing to changes to how it calculates them. The measures were published today after approval by Group of 20 leaders in France.
Nomura, Lloyds
Nomura Holdings Inc. and Spain’s Banco Bilbao Vizcaya Argentaria SA, which were both included in a list of 25 SIFIs published by Morgan Stanley analyst Huw van Steenis in June, escaped the FSB’s list. Lloyds Banking Group Plc, which Steenis didn’t expect to make the regulator’s list, did.
“The list in general is not a big surprise, if you look at who are the world’s top 30 banks,” Irving Henry, a director at the British Bankers’ Association, said in an interview. “It’s interesting that there is no Standard Chartered, although this may be because it’s not big in the U.K.”
“It’s also surprising that there is no Nomura,” he said.
The surcharges will be applied on top of an overhaul of bank-capital requirements that international regulators agreed on last year. Those changes, known as Basel III, will more than triple the core reserves that lenders must hold.
The additional buffers mean lenders may face core capital requirements of as much as 9.5 percent of assets, weighted on risk. At least four banks face the top surcharge of 2.5 percent, according to provisional data published today by the Basel Committee, which didn’t specify any individual lenders.
U.S. Banks
Goldman Sachs and JPMorgan are among eight U.S. banks on the list. David Wells, a spokesman for Goldman Sachs in New York, and Howard Opinsky, a JPMorgan spokesman, declined to comment. Jeanmarie McFadden, a spokeswoman for Morgan Stanley, which is included, also declined to comment.
Societe Generale SA and Credit Agricole Groupe are also among four French lenders included on the list. Deutsche Bank and Commerzbank AG are the two German lenders, while four U.K. banks, including HSBC Holdings Plc and Royal Bank of Scotland Group Plc face the surcharges.
Armin Niedermeier, a spokesman for Deutsche Bank, said the company’s inclusion on the list was expected. Reiner Rossmann, a spokesman for Frankfurt-based Commerzbank, declined to comment.
The list was dominated by European and U.S. banks, which was expected, Richard Reid, research director for the International Centre for Financial Regulation, said.
9 Percent
Some banks in the European Union already face requirements to hold 9 percent in core reserves, after sovereign-debt writedowns, under plans adopted by EU regulators in response to the Greek financial crisis. Banks will need to raise 106 billion euros ($145.9 billion) in fresh capital to meet the rules, the European Banking Authority estimated.
The definition of what banks can count as capital to meet the Basel surcharges is stricter than that used by the EU, which allows lenders to use some contingent convertible instruments to meet the 9 percent threshold. The extra requirements are calculated against banks’ interconnectedness, size, complexity, global reach, and the ability of other firms to take functions if they fail.
Four Asian banks, including the Bank of China and Mitsubishi UFJ Financial Group Inc. in Japan, also face the additional capital requirements from the Basel Committee.
Dismembered
“I am a bit surprised to see Bank of China, but maybe we are so Euro-American centric that we don’t recognize how big other banks are,” Henry said. “I was also surprised to see Dexia because it’s being dismembered.”
The extra capital requirements will be phased in from 2016 through 2018. They will have to be met with core Tier 1 capital, a definition of banks’ reserves which includes mainly ordinary shares and retained earnings. Banks that can’t meet the rules face restrictions on dividends and bonus payments.
The surcharge plans were approved by the G-20 in tandem with measures to ensure the orderly winding down of failed banks and to shield taxpayers.
‘Moral Hazard’
The measures “are aimed at reducing moral hazard so we can deal with failures of large institutions without, hopefully, having market disruption and without having to use public money,” Draghi said.
The plans also include requiring systemically important lenders to draw up so called living wills, showing how they could be wound down should they fail.
ING Groep NV’s inclusion one of the 29 banks was “in line” with expectations, said Carolien van der Giessen, a spokeswoman for the bank. Wells Fargo & Co., Citigroup, Unicredit Spa, and Santander, which were all also on the list, declined to comment. UBS AG and Credit Suisse Group AG representatives couldn’t immediately be reached for comment.
Lower Ratios
“From the European perspective, we also had BBVA, Intesa and possibly Standard Chartered on our list,” said Andrew Stimpson, an analyst with Keefe Bruyette & Woods Inc. in London. “The question is whether it really matters given that the national regulators are unlikely to allow banks to operate with lower capital ratios given that they are systemically important regionally and in Europe if not globally.”
The list of surcharge banks will be updated each November, using fresh data. The banks that will initially face the extra requirements will be those contained in the version of the list published in November 2014.
“Some of the omissions” from the list “reflect that the method for calculating the surcharges is too focused on size rather than interconnectedness,” Henry said. “The list should, or ought to, change as Euro-American banks evolve and big players rise from the emerging markets.”
Banks in the future could face surcharges of up to 3.5 percentage points if they grow bigger or more systemically important, the FSB said.
Provisional FSB List of G-SIFIs