JPM, Goldman and BNPP bumped up G-SIB capital list
JP Morgan, BNP Paribas and Goldman Sachs will all have a higher capital buffer in the future to meet requirements set for the world’s biggest 30 banks, due to an increase in their size or complexity last year.
The Financial Stability Board said on Tuesday its annual list of global systemically important banks – dubbed G-SIBs – will remain the same as last year, with 30 on the list.
Being a G-SIB requires banks to have a higher capital buffer, meet requirements for total loss-absorbing capacity, undergo detailed resolution planning and face more stringent supervisory scrutiny.
The FSB assigns each bank to a "bucket", determined by their size, complexity and interconnectedness. Each bucket is assigned a capital buffer that each bank must have, which ranges from 1% to 2.5% for the 30 banks.
JP Morgan will be required to move to a higher bucket requiring it to have an extra 2.5% of capital, up from its previous requirement of an extra 2%. It is the only bank in the 2.5% bucket.
France’s BNP Paribas has moved to the bucket requiring it to have an extra 2% of capital, up from 1.5% previously. It will sit alongside HSBC and Citigroup in that bucket.
Goldman Sachs has moved into the bucket requiring it to have an extra 1.5% of capital, from 1% previously. There are now eight banks in the 1.5% bucket, including Bank of America, Barclays, Deutsche Bank and Bank of China.
The remaining 18 G-SIB banks are in the bucket requiring them to hold a 1% surcharge. They include Credit Suisse, Morgan Stanley, UBS and Wells Fargo.
For JP Morgan and Goldman, the changes just reverse moves announced last year, when both banks dropped down a bucket, so it is unlikely to have much impact on capital levels. The binding constraint for US banks’ capital is also typically the levels set by the US Federal Reserve.
The change could have more of an impact on BNP Paribas, although the French bank is reported to be considering the sale of its big US business. If that happens, it would reduce its size and complexity and could see it move back down the G-SIB list.
The new levels will apply from the start of 2023. The list is based on the size, complexity and interconnectedness of banks at the end of 2020.
Extra capital buffers for G-SIBs were introduced following the 2008/09 financial crisis. The idea is that the greater the buffer requirement, the lower the failure probability of the bank.
The FSB and Basel Committee of Banking Supervisions outline how banks are "scored", but not all measures are clear-cut, so there is no certainty over the allocation.
The Basel Committee said it plans to review developments related to European banking union on its methodology, in particular the treatment of cross-border exposures within Europe.