US banks pose bigger risk to financial system: regulators

Citibank is the consumer division of financial services multinational Citigroup. It was founded in 1812 as the City Bank of New York, later First National City Bank of New York. PHOTO | WASHINGTON POST

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The FSB coordinates oversight of the most globally systemic banks, while the capital surcharges are implemented by national authorities that are board members

New York. Global banking regulators said some US lenders presented a bigger risk to the financial system than last year and should face stiffer capital requirements to ward off threats.

Citigroup Inc, Bank of America Corp and Wells Fargo & Co all face higher capital surcharges after they rose in the Financial Stability Board’s latest ranking of the most systemically important banks in the world. Meanwhile, New York-based Morgan Stanley and London-based lenders HSBC Holdings Plc and Barclays Plc saw their buffer levels fall, the FSB said in a statement on Monday.

HSBC’s capital surcharge falls to 2 per cent of risk-weighted assets from 2.5 per cent, while Citigroup’s buffer rises to 2.5 per cent from 2 percent, the FSB said. Barclays surcharge falls to 1.5 per cent from 2 per cent; Wells Fargo rises to 1.5 per cent from 1 per cent and the Industrial and Commercial Bank of China surcharge rises to 1.5 per cent from 1 per cent.

The drop in HSBC’s surcharge is positive for the lender and “further enhances the capital return prospects” in the long term, Citigroup analysts said in a note.

The FSB’s list is headed by Citigroup and JPMorgan Chase & Co.

Citigroup said in a statement that its rise in the FSB list “does not drive a binding capital constraint” on the bank, and that it’s already subject to a stiffer 3 per cent surcharge imposed by the US Federal Reserve.

Complex risks

Banking regulators moved after the 2008 credit crisis to increase capital levels across the industry as well as to impose surcharges for lenders deemed to present the biggest and most complex risks to the financial system. The extra capital requirements for systemically important lenders began to take effect in 2016 and are reviewed annually. The new levels announced on Monday apply starting in 2018.

The FSB, which is led by Bank of England Governor Mark Carney, coordinates oversight of the most globally systemic banks, while the capital surcharges are implemented by national authorities that are members of the board.

The 30 banks on the list are also subject to bank-failure rules, known as total loss-absorbing capacity, that the FSB adopted last year. The TLAC requirements are meant to protect against taxpayers having to bail out failed banks. (Bloomberg)