Basel Committee Plans to Weigh 3.5 Percentage-Point Fee to Curb Bank Growth

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According to various news sources, the Basel Committee on Banking Supervision is considering additional capital requirements of as much as 3.5 percentage points that the largest banks may face if they grow any bigger.

The additional surcharge requirement would take the form of a boost to capital the banks must hold and would apply to financial institutions whose collapse would harm the global economy.     The proposed plan would subject banks to a sliding scale depending on their size and links to other lenders.    Banks wouldn’t initially face the highest surcharge, which is intended as a deterrent to expansion.      The largest banks may face a 3 percentage point levy at their current sizes.    A list of such banks hasn’t been disclosed.   

The governments still are debating over how far to toughen bank capital requirements and some countries arguing for weaker requirements than set out in the draft proposals.    The U.S. Federal Reserve has backed a graduated surcharge with a maximum of 3 percentage points leaving the possibility to surcharges of as much as 7 percentage points.

The specific figures will be discussed further at meetings next week in Basel, Switzerland.    However, some experts argue that the Basel Committee is unlikely to agree next week on whether the surcharge should be made up purely of common equity, which includes mainly ordinary shares and retained earnings, or if part of it could contain contingent capital instruments.     Contingent capital includes securities such as CoCo bonds, which convert to ordinary shares when a bank’s capital falls below a predetermined level.

The requirements being discussed next week would go beyond capital rules for internationally active lenders that were published by the Basel committee last year.    These measures, known as Basel III, require banks to hold core capital equivalent to 7 percent of their risk-weighted assets to avoid future taxpayer-funded bailouts.

Anna Timone (195 Posts)

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