Deutsche bank faces top sur­charge as FSB shuf­fles tiers

The Pak Banker - - Front Page -


Deutsche Bank would be re­quired to hold more cap­i­tal and Bank of Amer­ica Corp’s burden stands to be re­duced as global reg­u­la­tors shuf­fled the com­pet­i­tive bal­ance among the world’s big­gest banks.

Cit­i­group Inc, HSBC Hold­ings Plc and JPMor­gan Chase & Co join Deutsche Bank as firms that will be tar­geted for a cap­i­tal sur­charge of 2.5 per­cent, ac­cord­ing to an updated list pub­lished yes­ter­day by the Fi­nan­cial Sta­bil­ity Board. The change means Bank of Amer­ica al­ready ex­ceeds re­quire­ments, while Deutsche Bank would be more than 2 per­cent­age points be­low the new min­i­mum of 9.5 per­cent. Cit­i­group, Deutsche Bank, HSBC and JPMor­gan may be tar­geted by the Group of 20 nations for top cap­i­tal sur­charges of 2.5 per­cent­age points, ac­cord­ing to an updated list pub­lished by global reg­u­la­tors. The Ger­man lender was moved up from a lower tier by the Fi­nan­cial Sta­bil­ity Board. “That lim­its earn­ings po­ten­tial for Cit­i­group, JPMor­gan and Deutsche Bank com­pared to Bank of Amer­ica, all other things be­ing equal, so it’s cer­tainly a com­pet­i­tive ad­van­tage for them,” said David Kass, a pro­fes­sor at the Univer­sity of Mary­land’s Robert H. Smith School of Busi­ness.

The cap­i­tal sur­charges for sys­temic banks, set in half- per­cent­age­point in­cre­ments rang­ing from 1 per­cent to 2.5 per­cent, come on top of agree­ments by the Basel Com­mit­tee on Bank­ing Su­per­vi­sion to more than triple the core re­serves they must hold against pos­si­ble losses. The ex­tra re­quire­ments are cal­cu­lated against banks’ in­ter­con­nect­ed­ness, size, com­plex­ity, global reach, and the abil­ity of other firms to take over their func­tions if they fail. Royal Bank of Scot­land Plc will be sub­ject to a 1.5 per­cent buf­fer, down 1 per­cent­age point from last year’s list. Three banks — Dexia SA Lloyds Bank­ing Group Plc and Com­merzbank AG - - were re­moved from the list, the FSB said. Stan­dard Char­tered Plc and Banco Bil­bao Viz­caya Ar­gen­taria SA (BBVA), which weren’t in­cluded in 2011, were added to the low­est sur­charge group.

Dexia is be­ing bro­ken up by the French and Bel­gian gov­ern­ments af­ter los­ing ac­cess to un­se­cured fund­ing. The other two have seen a “de­cline in their global sys­temic im­por­tance,” the FSB said. The qual­ity of data it used in de­ter­min­ing the list “im­proved con­sid­er­ably” from last year, the group said. “It would have been more help­ful if FSB ex­plained why some banks fell off the list and why some joined or moved around buck­ets — does this mean the frame­work was wrong last year?” said Bar­bara Matthews, manag­ing di­rec­tor of BCM In­ter­na­tional Reg­u­la­tory An­a­lyt­ics LLC, a Wash­ing­ton-based con­sult­ing firm. “This is a clas­sic case of in­for­ma­tional asym­me­try be­tween banks, reg­u­la­tors and mar­kets that per­petu- ates moral haz­ard.” JPMor­gan Chief Ex­ec­u­tive Of­fi­cer Jamie Di­mon last year pre­dicted a “race to the top” as lenders tried to meet re­quire­ments well be­fore the dead­line and said his com­pany would win busi­ness be­cause of its higher cap­i­tal lev­els.

In­vest­ment banks that aren’t in the top group will have to see if clients care whether they have as much cap­i­tal as Cit­i­group and JPMor­gan, said Christo­pher Wheeler, a Lon­don-based an­a­lyst at Me­diobanca SpA.

“The guys at the top are stuck, and the guys be­low are scratch­ing their heads and say­ing, ‘Do we have to go up and be in line to be com­pet­i­tive,’” Wheeler said. “If your clients don’t worry, you’re prob­a­bly fine” to hold lower equi- ty cap­i­tal, he said.

Bar­clays Plc (BARC) and BNP Paribas SA (BNP) may face sur­charges of 2 per­cent. BNP, based in Paris, and Ed­in­burgh-based RBS were pre­vi­ously tar­geted for the high­est 2.5 per­cent sur­charges. Char­lotte, North Carolina-based Bank of Amer­ica, the sec­ond­largest U.S. lender, now faces cap­i­tal re­quire­ments a full point lower than JPMor­gan and Cit­i­group, the first- and third-big­gest.

“Bank of Amer­ica is a head­scratcher,” said Christo­pher Ko­towski, an Op­pen­heimer & Co. an­a­lyst. “How you would come to the con­clu­sion that Bank of Amer­ica is less of a SIFI and less risky than JPMor­gan and Citibank is just a real puz­zler.”

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