The Federal Reserve has proposed the surcharges it plans to impose on the largest U.S. bank holding companies. Although its methodology for determining those subject to the surcharge differs from the global one, the BHCs initially subject to it would be the same as those already designated as global systemically-important banks (G-SIBs) by the Financial Stability Board. However, all BHCs with assets over $50 billion will need to calculate their potential systemic risk under the NPR’s methodology. The amount the U.S. would charge is almost twice as high as the global G-SIB surcharge, in part because the U.S. one includes a capital charge on liquidity risk. The U.S. approach would also expand the enhanced supplementary leverage charge now applied only to G-SIBs to any designated BHC under this methodology. The NPR does not make it clear if the surcharge would ride atop the generally higher capital requirements U.S. G-SIBs must hold under their stress-test and capital-planning rules. However, the Board meeting suggested that this might well occur, making the U.S. surcharge a still higher one for G-SIBs and, over time, likely also for designated non-bank systemic institutions (SIFIs) and the U.S. operations of foreign banks designated as G-SIBs. Any requirement that total loss-absorption capacity (TLAC) held in equity also ride atop the surcharge would further hike its U.S. cost.
The full report is available to retainer clients. To find out how you can sign up for the service, click here