Biggest banks face extra capital requirements under Basel III

27 June 2011 8:43 am | By Joanne Ellul

Central bankers and regulators have agreed to impose an extra capital charge of 1 per cent to 2.5 per cent of risk-adjusted assets on the largest banks in a bid to protect them from the big losses that could trigger another financial meltdown, the Financial Times reports.

The potential top surcharge dropped from 3 to 2.5 per cent in exchange for preventing banks from using “contingent capital” – debt that converts to equity at times of trouble – to meet the requirements.

The surcharge comes on top of the worldwide Basel III minimum of 7 per cent set last year for all banks. That means roughly eight of the biggest most interconnected banks have to maintain capital equal to 9.5 per cent of their risk-weighted assets by 2019. About 20 more banks will face total ratios of 8 to 9 per cent.

The overseers of the Basel committee on banking supervision also said they reserved the right to impose a further surcharge of 1 per cent – for a total of 10.5 per cent – on the top banks if they become even larger or more important to the banking system.

People familiar with the discussions, the Financial Times reports, have said JPMorgan, Citigroup, Bank of America, Barclays, HSBC, Royal Bank of Scotland, BNP Paribas and Deutsche Bank are likely to make up the top category.

Goldman Sachs, UBS, Credit Suisse and Morgan Stanley are expected to be in the second group with a 2 per cent surcharge. The largest Italian, French, Japanese and Spanish banks are also expected to be hit by the surcharge system.

Earlier this month, Bank of England governor Mervyn King said the 7 per cent core tier one capital requirements set out under Basel III were a minimum, not a maximum and that member states must be able to increase it as they see fit.

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