The central bank is considering easing regulations for major domestic banks
The potential rule change could lead to billions of dollars in capital savings at the eight largest banks in the US, Reuters reported, citing insiders.
In the US, JP Morgan, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley and BNY Mellon and State Street are currently classified as globally systemically important.
Image: Ding Shen/Bloomberg
The US Federal Reserve is considering easing capital regulations for the country's biggest financial institutions, according to insiders. The potential rule change could lead to billions of dollars in capital savings at the eight largest U.S. banks, four people familiar with the matter told Reuters. However, negotiations are ongoing and no decision has been taken yet. The potential rule change affects the calculation of an additional capital buffer for globally systemically important banks, known as the GSIB surcharge (Global Systemically Important Banks). It was introduced by the central bank in 2015 to increase the stability and safety of institutions following the experiences of the 2008 financial crisis.
Insiders said the central bank is considering revising the benchmarks for calculating the GSIB premium, which has been in place since 2015. Economic growth should be taken into account and the size of banks should be recorded more accurately in relation to the global economy. A correction of the calculation method for these coefficients will lead to a decrease in the number of critical points (score) for classification. This will reduce the additional capital buffer required by banks. At that time, based on data from 2012 to 2013, the central bank set coefficients related to bank size, network, complexity and cross-border operations.
In the US, JP Morgan, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley and BNY Mellon and State Street are currently classified as globally systemically important. Eight companies declined to comment on the information or did not initially respond to inquiries. Big banks have been pushing regulators for years to reduce required additional capital buffers. So far they have had little success in this.
How much capital savings will be depends on the respective business models. By the first quarter of 2024, banks will need to hold about $230 billion in capital for this buffer, according to central bank data. Even a small change in the calculation method can result in significant relief. For example, at the two biggest banks, JP Morgan and Bank of America, the 0.5% capital premium is more than eight billion dollars each, according to Reuters calculations. If this is no longer relevant, released capital can be re-introduced into the economy, for example through debt.
In a letter to the central bank released in January, JP Morgan wrote that US GSIBs would collectively hold $59 billion in additional capital buffers based on economic growth. Insiders said the central bank is considering taking global economic growth into account in its calculations in recent years. Can't figure out exactly how this happens.
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Reuters
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