Bank of America will need a higher capital buffer in the future to meet requirements set for the world’s 30 biggest banks, due to an increase in its size or complexity last year.
The Financial Stability Board said on Monday the list of 30 global systemically important banks – dubbed G-SIBs – remains the same, and BofA is the only bank to see its capital requirements increase. It will in future need to have additional capital of 2%, up from 1.5% previously.
Two banks have seen a reduction in their capital requirements – BNP Paribas will have 1.5% additional capital, down from 2% previously. And China Construction Bank has to have additional capital of 1%, down from 1.5% previously.
Being a G-SIB requires banks to have a higher capital buffer, meet requirements for total loss-absorbing capacity, undergo detailed resolution planning and face more stringent supervisory scrutiny. Banks are assessed annually and the FSB revises the list each November. The new requirements will come into effect at the start of 2024.
The impact on BofA may be limited anyway, as the binding constraint for US banks’ capital is typically the level set by the US Federal Reserve rather than the global rules.
The change for BNP Paribas only reverses a move a year ago, when its buffer requirement was bumped up.
The FSB assigns each bank to a "bucket", determined by their size, complexity and interconnectedness. Each bucket is assigned a capital buffer that each bank must have, which ranges from 1% to 2.5% for the 30 banks.
JP Morgan remains the only bank in the top bucket, requiring it to have an extra 2.5% of capital.
BofA joins Citigroup and HSBC in the bucket requiring banks to have an extra 2% of capital.
Seven banks are now required to have an extra 1.5% of capital. As well as BNP Paribas, they are Bank of China, Barclays, Deutsche Bank, Goldman Sachs, ICBC and Mitsubishi UFJ Financial Group.
The remaining 19 banks are each required to have an extra 1% of capital. They include Credit Suisse, Morgan Stanley, Royal Bank of Canada, Societe Generale, UBS and Wells Fargo.
Extra capital buffers for G-SIBs were introduced following the 2008/09 financial crisis. The idea is that the greater the buffer requirement, the lower the failure probability of the bank.
The latest list was based on data at the end of 2021. The Basel Committee on Banking Supervision said it has reviewed the methodology and implications of developments related to the treatment of cross-border exposures in European Banking Union, and will in future give adjustments for these exposures.