FSB reveals G-Sib additional capital charges breakdown

On November 1, the Financial Stability Board (FSB) has for the first time revealed the additional amounts of capital that will be levied on global systemically important banks (G-Sibs).

Deutsche Bank, Citigroup, HSBC and JP Morgan Chase will all need an additional 2.5% of capital under new rules being introduced during the next five years due to concerns about their systemic importance to the financial system. This ‘level 4 bucket' is the top capital charge assigned to any banks to date under the Basel Committee on Banking Supervision's criteria. The higher ‘level 5 bucket', which requires an extra 3.5% of capital is currently empty. Barclays and BNP Paribas will both include an additional 2% in capital by falling into the ‘level 3 bucket'.

Meanwhile, Commerzbank and Lloyds TSB fell off the list of G-Sibs "as a result of their decline in global systemic importance"; while BBVA and Standard Chartered have joined the list and will be required to hold an additional 1% in capital, according to an FSB statement. Dexia, which the FSB said is "undergoing an orderly resolution process" has also left the list, which was first published last year but omitted details regarding the additional capital buckets allocated to specific institutions.

The FSB and Basel Committee used end-2011 data to make their G-Sib determinations. However, the new rules on additional loss absorbency capital will only start to be phased in in 2016, which will draw on the results of a 2014 assessment to determine which institutions will be needed to hold additional capital, with full implementation in January 2019. But there is investor pressure for banks that are named as G-Sibs to raise capital ahead of the introduction of the new rules.

The FSB also said that financial institutions no longer deemed as G-Sibs will still be subject to requirements for recovery and resolution planning as deemed appropriate by national authorities, but added implementation of these requirements will no longer be subject to peer review.

The FSB and Basel Committee were tasked by the G-20 to reform global financial services regulation in the aftermath of the global financial crisis in 2007. Reducing the likelihood of the collapse and minimising the systemic impact of the failure of a large, interconnected financial institution were viewed as critical components in this process.