Alert October 04, 2011

Basel Committee Reaffirms Proposal to Impose Capital Surcharge on Banks That are “Too Big To Fail”

The Basel Committee on Banking Supervision (the “Basel Committee”) issued a release reaffirming its proposal (initially disseminated for public comment in July 2011) to impose a capital surcharge on banks deemed to be “too big to fail.”  The surcharge would involve a 1% to 2.5% additional charge (to be held in the form of common equity) for 28 banks (which were not named), with the charge varying with the bank’s perceived systemic importance.  The capital surcharge would be above the minimum capital requirements under the Basel III capital accord.  The Basel Committee also is proposing to dissuade “too big to fail banks” from expanding further by means of the imposition of a 3.5% capital charge on expanding banks that, as a result of such expansion, would become even more systemically important.