Citi, JP Morgan may face highest capital surcharges following G20 plan

BASEL/CANNES: Citigroup, JPMorgan Chase, BNP Paribas, Royal Bank of Scotland Group, and HSBC Holdings may face top capital surcharges of 2.5 percentage points, according to a provisional list prepared by global regulators and obtained by Bloomberg News.

The list was drawn up as part of plans by the Group of 20 nations to force banks whose failure could damage the global economy to boost their reserves by 1 to 2.5 percentage points above minimum levels agreed by international regulators.

Bank of America, Barclays and Germany’s biggest bank Deutsche Bank may face surcharges of 2 percentage points, according to the list. “You’re saying by virtue of being a bigger bank, you’re going to have to pay for that,” Joseph R. Mason, a finance professor at Louisiana State University in Baton Rouge, said in a telephone interview.

“You’re creating an incentive for big banks to hide even more risk to get the surcharge reduced.” A simplified version of the 29-bank list, which didn’t set out the surcharges individual banks would face, was published by the Financial Stability Board on November 4.

Lenders including HSBC and BNP Paribas have warned regulators the plans could cause them to cut lending and support to international trade. Plans for the surcharges were published after approval by G20 leaders in France. Regulators have emphasised the current list is provisional and will be repeatedly revised before the surcharges are applied starting in 2016.

The list is based on data from the end of 2009 that “may not be sufficiently reliable or complete,” the Basel Committee on Banking Supervision, which drafted the measures, has said. Lenders have already been asked to submit end-of-2010 data for an updated list to be published next year.