March 29, 2024

Regulators Defend Extra Capital Buffer for Banks

The Basel Committee on Banking Supervision and the Financial Stability Board said their joint study group estimated that a one percentage point buffer on the top 30 banks over eight years would cut economic growth by less than 0.01 percent a year during the phase-in period, but “the benefits from reducing the risk of damaging financial crises will be substantial.”

Both bodies have approved the bank capital surcharge plan that leaders of the world’s top 20 economies are set to endorse in November.

A surcharge of 1 to 2.5 percent — the amount depending on five factors like complexity and international reach — will be introduced from 2016 over three years. Banks including JPMorgan Chase, HSBC, Barclays and Deutsche Bank are almost certain to be included.

The surcharge comes on top of a minimum of 7 percent capital buffers that all banks must hold under the global Basel III accord being phased in from 2013.

The aim is to avoid taxpayers’ having to bail out banks again in the next crisis. It is part of a wider effort to tackle “too big to fail” lenders by ending market assumptions that governments will not allow them to collapse.

JPMorgan Chase’s chief executive, Jamie Dimon, has described the surcharge as anti-American and has clashed with the Bank of Canada governor, Mark Carney, who will take over at the Financial Stability Board in November. The banking industry warns that piling capital requirements on lenders will crimp their ability to aid growth, but regulators say banks fail to calculate the benefits of tougher standards.

The two bodies estimated that the Basel III proposal combined with the capital surcharge “contribute a permanent annual benefit of up to 2.5 percent of G.D.P. — many times the costs of the reforms in terms of temporarily slower annual growth.”

The Basel III rules and surcharge combined will lower economic growth by an estimated 0.34 percent at the point of peak impact, the regulators said.

Article source: http://feeds.nytimes.com/click.phdo?i=ed37f0933da9ffefaa41ccbf73851164

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