Central bankers agree on bank capital surcharge plan

Central Bank

Global banking regulators have agreed on a proposal to slap an extra capital charge on the world’s biggest banks to make them safer by 2019.

The Group of Governors and Heads of Supervision (GHOS) said after a meeting in Basel on Saturday the proposal would be put out to public consultation next month.

“The additional loss absorbency requirements are to be met with progressive common equity tier 1 capital requirement ranging from 1% to 2.5%, depending on a bank’s systemic importance,” the group said in a statement.

An additional 1% surcharge would also be imposed if a bank becomes significantly bigger.

The plans, which need approval from world leaders (G20) in November, would be phased in between January 1 2016 and end of 2018.

The capital surcharge will come on top of the new 7% minimum core capital all banks across the world will have to hold under new Basel III rules being phased in from 2013.

It appears the central bankers have opted for a smaller surcharge than foreseen but, in return, the surcharge will have to be in the form of top quality capital, such as retained earnings or common equity.

Banks were hoping they could use hybrid debt such as contingent capital to pad out the surcharge band.

The proposal, which was due to be finalized by last November but faced opposition from banks and some countries, will apply initially to so-called globally systemically important banks (G-SIBs).

“These measures will strengthen the resilience of G-SIBs and create strong incentives for them to reduce their systemic importance over time,” the statement said.

There was no indication how many banks will be included.

Banks will face a surcharge according to an indicator that draws on five elements – size, interconnectedness, lack of substitutability, global (cross-jurisdictional) activity, and complexity.

The group of central bankers and the Basel Committee it oversees said they will continue to review the use of contingent capital.

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.

admin    Banking     Absorbency, Basel Committee, Basel Iii, Biggest Banks, Complexity, Contingent Capital, Core Capital, Five Elements, Ghos, Global Banking, Incentives, Interconnectedness, January 1, Last November, Public Consultation, Regulators, Resilience, Surcharge, Tier 1 Capital, World Leaders