La Federal Reserve of the United States is considering the modification of some rules what he could do save all otto major banks of the country billions of dollars in capital, as long requested by the sector. Reuters reports it, after speaking to four sources familiar with the matter. The central question concerns the mode with which the central bank calculate that amount of capital additional that it imposes to US Global Systemically Important Banks (GSIBs), known as the “GSIB supplement”, introduced in 2015 to increase their safety and solidity.
The Fed is now considering the possibility of update the data used in the calculation, to adapt them to economic growth and thus more accurately reflect the size of banks relative to the global economy. Updating these inputs or “coefficients” would reduce the systemic scores of the banks and the consequent capital supplement. The Fed study is still ongoing and no decisions have been made for now, sources said.
The GSIBs hold $230 billion in capital for the surcharge
The central bank's willingness to review the issue represents an important advance in the GSIB's multi-year, hitherto unheeded, campaign to try to reduce the surcharge. The potential capital savings for the eight banks, which include JPMorgan, Citigroup and Bank of America, it would depend on a number of factors, including their business models.
According to data from the Fed itself, US GSIBs held in the first quarter of 2024 approximately 230 billion dollars in capital because of the surcharge, consequently even a small change could lead to significant savings for some banks. For example, a 0,5% supplement is equivalent to more than 8 billion dollars each for JPMorgan and Bank of America, according to a Reuters calculation. This is money that banks say they can pour into the economy through loans. Spokespeople for the GSIBs, which also include Wells Fargo, Goldman Sachs, Morgan Stanley, BNY and State Street, declined to comment.
After all, just a couple of weeks ago the big American banks they passed the stress tests annual reports of the Federal Reserve: the 31 institutions under scrutiny, from giants such as JP Morgan to credit card leaders such as American Express and regional groups such as Truist, they have proven they are capable if necessary to address scenery of serious recession and crisis while preserving adequate levels of capital, better than the minimum requirements required and capable of continuing to support flows of financing to companies and consumers.
The coefficients were defined 10 years ago and are no longer updated
La surcharge it was introduced in 2009 following the global financial crisis triggered by the collapse of Lehman Brothers and served to increase the resilience of GSIBs, given the threat they represent to financial stability. In 2015 the Fed had then fixed the coefficients, which refer to a bank's size, interconnectedness, complexity and cross-border activity, using data from 2012-2013. The central bank said this approach would improve the predictability of scores and make planning easier for banks, adding that the framework would be periodically reviewed. But the GSIBs have been waiting for such a review for some time. They argue that because banks tend to grow in line with the economy, using an outdated methodology makes them appear larger relative to the overall economy than they actually are. “U.S. GSIBs hold more than $59 billion in GSIB capital reserves attributable solely to general economic growth,” JPMorgan wrote in a public letter to the Fed in January. The Fed is therefore now evaluating the possibility of update the coefficients to take into account the global economic growth of the last years.
Comparison with Basel
Fed officials have been around for a long time reluctant to review the coefficients, fearful of being seen as supporting a select group of giant banks, the sources said. But last year the central bank triggered a debate when it presented, together with two other regulators, the proposal “Basel Endgame“, which would increase the capital of GSIBs and other large banks. Fed officials argued that the plan would more accurately measure the risk of bank losses.
At the same time, the Fed proposed to be able to independently make the GSIB supplement more sensitive to the risks of banks. He did not discuss the ratios and predicted the changes will have little impact on the size of banks' capital surcharges, although some banks say they will increase them. But the proposals have sparked massive industry lobbying, opening the door for GSIBs to push for ratios again. The big banks are the most affected by the Basel proposal and have aggressively argued that it will force them to limit lending. The Fed is sympathetic to these complaints and is working to review the proposal, but any concessions must be agreed with other regulators, who are less forthcoming, Reuters reported.
Updating the mark-up coefficients is one way in which the Fed could compensate independently the impact of the Basel increases for large banks. “The Federal Reserve could ease the burden on larger banks while simultaneously proposing a reform of the GSIB surcharge,” Jaret Seiberg, an analyst at TD Cowen, wrote in a note responding to Reuters. This could rule out any capital increase for the larger banks, which could be between 3% and 5%.”
