Today, the Financial Times outlined what it thinks is afoot with regard to surcharges for systemically-important financial institutions (SIFIs), especially those doomed to wear the scarlet G for global. G-SIFIs – the biggest of the big in the financial industry – are to carry the heaviest surcharge burden, as critics think befits the sin of SIFIness. From what we hear, the FT got it a bit wrong on what’s about to befall SIFIs at the Financial Stability Board, and we here review not only the state of play, but also the very considerable stakes of the game.

In fact, there are two games afoot. The first is the global one. Last month, finance ministers put the pedal down for the foot-dragging FSB, telling it to come up with SIFI-designation criteria and capital surcharges by July. The FSB will put its ideas out for comment, although this exercise is largely a courtesy one in the global arena (where no decisions are made public until they are pretty much made). The second game is in the U.S. Here, Dodd-Frank mandates both SIFI criteria and a set of surcharges. The SIFI criteria don’t have a deadline, and regulators yesterday made clear that naming names won’t occur until this fall – at the earliest. But, the surcharge provisions in Dodd-Frank have a drop-dead date for final rules: January 21, 2012. The living-will part of the systemic package is already out for public comment. If it’s any predictor, the rest of the package will make covered firms faint.

The key question for G-SIFIs facing both the FSB and U.S. standards first arises in the costly capital arena. The SIFI add-ons for non-capital factors – e.g., liquidity – are in early development. But, capital negotiations are well advanced and G-SIFIs are fully in everyone’s sights as the first subjects of the surcharge regime.

At this point, the FSB capital surcharge will be a hodge-podge. The last year or so has largely been taken up in finalizing the Basel III capital regime – no easy task, of course. During these deliberations, regulators came close to mandating some form of “loss-absorbent” capital, but they couldn’t make up their minds on what exactly this means. Is it “bail-in debt” – that is, a form of mandatorily-convertible debt that turns debtors into equity holders when something bad happens to a SIFI? And, if so, what’s the “something bad” – failure, a drop in regulatory capital, taxpayer intervention? And, based on this, can bail-outs continue, albeit at greater cost to investors?

If these problems are too perplexing, then, is loss-absorbent capital something else – contingent capital (often called coco)? If so, what’s coco? How much capital of what composition? And, again, what’s the trigger that cooks the coco?

Because these triggers touch directly on when or if a SIFI could be considered too big to fail, the value of them as real disciplines on management or as real boons to taxpayers is, at best, debatable. But, simply piling on still more tangible common equity (TCE) atop the already-costly Basel III rules could be a crushing blow that all but the most bloody-minded regulators recognize might have undue macroeconomic impact. This has led the FSB to the G-SIFI surcharge: a combo platter of TCE, bail-in debt and/or coco.

Regulators will calibrate these three options – how, God knows – to come up with an add-on factor that can be met in one or all of these capital instruments. G-SIFIs would have to hold the most added capital and SIFIs would slip to lesser surcharges as their risk profile diminishes.

Which gets us right back to who’s a SIFI. G-SIFIs are known to themselves and regulators by virtue of the few, hard-to-miss firms with giant global footprints. But, there are firms of almost equal size that limit themselves to one or another largely-domestic market – Japan and China coming immediately to mind. At this point, the FSB doesn’t think these behemoths are G-SIFIs, giving their home-country regulators a lot of slack to limit the damage the surcharge could do to them.

In sharp contrast, the U.S. SIFI surcharge process could prove merciless. Although defining nonbank SIFIs is on hold, the law sets the SIFI threshold for bank holding companies at $50 billion in assets. These BHCs are minor players in the U.S., let alone the global field, yet somehow they have attracted Congress’ ire and must bear the cost of SIFIness.

Will Basel III be the base for SIFI capital or only cover G-SIFIs and those near to them in size in the U.S.? If so, what is the capital regime for all but the G-SIFIs? And,what’s the surcharge for whom when?

We don’t know the answer to these questions, but we do know that it won’t be cheap. But, given the deadline for Dodd-Frank’s systemic surcharges and the U.S. commitment to comply with Basel III by year-end 2012, these decisions are sure and soon.