TD joins global list of banks too big to fail

LONDON/TORONTO Canada’s second-biggest lender, Toronto Dominion Bank, has been added to a global list of systemic banks that must hold extra capital, while Deutsche Bank has dropped a rank within the list, the Financial Stability Board (FSB) said on Friday.

The international body, based in Basel, Switzerland, was updating its list of systemic banks, introduced in the aftermath of the global financial crisis a decade ago when taxpayers had to bail out struggling lenders.

The addition of TD Bank brings the total number of systemic banks to 30. Royal Bank of Canada was already on the list.

Systemic banks are slotted into one of five buckets, although the fifth — where banks would be required to hold an extra 3.5 per cent of capital to risk-weighted assets on top of minimum requirements — remains empty.

TD has been placed in the first bucket, with a one-per-cent surcharge.

TD, along with Canada’s five other big banks, is already designated a domestic systemically important bank, which subjects it to a one-percent common equity capital surcharge, according to Canada’s banking regulator. Canadian banks are required to hold eight per cent of capital to risk-weighed assets, and an additional capital conservation buffer of 2.5 per cent.

“Management does not expect any impact to TD’S capital position with this designation,” TD said in a statement.

The bank is “well-positioned to meet the (global systemically important bank) requirements starting in November 2020,” Canada’s Office of the Superintendent of Financial Institutions, which regulates the industry, said in a separate statement.

JP Morgan Chase remains the sole occupier of the fourth bucket, with a 2.5-percent capital surcharge.

Citigroup and HSBC are in the third bucket, with a twoper-cent surcharge.

Deutsche Bank fell from the third to the second bucket, which has a 1.5-per-cent surcharge, in a sign of how the struggling German lender is shrinking.

“This was primarily driven by reductions in leverage, strategic adjustments in the bank’s business and geographic perimeter and lower derivative volumes, together with wider industry developments,” it said in a statement.

Deutsche Bank is, however, still required to meet a two-per-cent extra capital requirement as a “domestic systemically important bank,” and therefore the overall capital buffer is expected to remain unchanged, the German bank said.