* Citigroup, Deutsche Bank, HSBC, JPMorgan Chase top list
* Must hold extra capital to absorb potential losses
* Other big banks assigned smaller buffers
* G20 finance ministers meet in Mexico this weekend
By Rick Rothacker
Nov 1 Citigroup Inc, Deutsche Bank
, HSBC and JPMorgan Chase & Co will
need to hold the most extra capital of 28 banks considered so
large and complex they need an extra buffer to absorb potential
losses, global regulators said on Thursday.
The four global banks will be required to hold an extra 2.5
percent of common equity as a percentage of risk-weighted assets
on top of a 7 percent minimum being phased in from January,
according to the Financial Stability Board, a regulatory task
force for the group of 20 top economies.
The additional cushion aims to make sure large banks cannot
threaten the financial system in future crises and require
The FSB will update its requirements twice more over the
next two years before they start going into effect in 2016.
Large banks are building capital to meet the new
requirements known as "Basel III." For banks, holding more
capital - in other words, funding themselves with more equity -
makes it harder to wring profit from their balance sheets. But
higher capital levels also give banks a bigger cushion to absorb
losses, making it harder for them to go broke in bad times.
Barclays Plc and BNP Paribas were
assigned the next highest buffer of 2 percent, according to the
FSB. Eight banks including Bank of America Corp and
Goldman Sachs Group Inc fell in the next highest bucket
of 1.5 percent.
The remaining 14 banks will be required to hold 1 percent of
extra capital. No bank was in the 3.5 percent range, which is
considered a stick to stop banks from growing any bigger. See
Thursday's statement was timed for a meeting of G20 finance
ministers in Mexico this weekend when governments will review
progress in implementing a welter of pledges to reform finance
after the 2007-2009 financial crisis.
"It's a significant cost to all of the institutions,
especially those at the higher end," said Karen Petrou, managing
partner of Federal Financial Analytics, a Washington-based
financial services consulting company.
Petrou noted it was up to national regulators to act on the
rules for the buffers to have any teeth.
Citigroup spokeswoman Shannon Bell said the bank's estimated
Tier 1 common capital ratio of 8.6 percent under Basel III at
the end of the third quarter was among the highest in the
industry. The bank expects to continue to generate capital
through earnings and the divestiture of non-core assets, she
JPMorgan declined to comment. Deutsche Bank and HSBC could
not be immediately reached.
The Financial Stability Board published an initial list of
29 so-called systemically important banks in November 2011, but
Thursday's statement was the first time that it assigned
specific capital buffers to each bank.
The FSB on Thursday reduced the list to 28 as it removed
three institutions - Dexia , Commerzbank
and Lloyds Banking Group - and added BBVA
and Standard Chartered.
The capital requirements likely held some surprises for
banks and their investors. For example, an industry source had
told Reuters last year that a preliminary assessment showed Bank
of America and Deutsche Bank would likely be in the 2 percent
category. Bank of America ended up being lower and Deutsche Bank
The additional requirements will begin to be applied in
January 2016 and will be phased in by January 2019. The FSB's
list will be updated in November 2013 and 2014.