Alert March 22, 2011

BCBS Reportedly Agrees on Capital Surcharges for Global Systemically Important Banks

The Basel Committee on Banking Supervision (“BCBS”) has reportedly agreed on (i) criteria for identifying those banks that will be deemed global systemically important banks (“Global SIBs”) and (ii) the amount of additional capital surcharges on such banks.  According to several publications, criteria such as size, complexity, interconnectedness with other financial institutions, scale of international operations and the ability for other banks to absorb its functions, will be used to determine which banks will be identified as Global SIBs.  Such banks would face a sliding scale of capital surcharges based on the risk they pose to the global financial system in the event of their failure, as determined pursuant to the abovementioned criteria.  Regulators would regularly evaluate which banks would be subject to such capital surcharges, and at what amounts.

The BCBS reportedly has not yet determined what component of these capital surcharges must be comprised of common equity.  The BCBS’s recommendations will also be subject to further review from the Financial Stability Board.  The Alert will continue to monitor and report on important developments in this area.