Regulators ask key global banks to hold extra capital

Updated 03 November 2012
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Regulators ask key global banks to hold extra capital

NEW YORK: Citigroup Inc, Deutsche Bank, HSBC and JPMorgan Chase & Co. will need to hold the most extra capital of 28 banks considered so large and complex they need an extra buffer to absorb potential losses, global regulators said.
The four global banks will be required to hold an extra 2.5 percent of common equity as a percentage of risk-weighted assets on top of a 7 percent minimum being phased in from January, according to the Financial Stability Board, a regulatory task force for the group of 20 top economies.
The additional cushion aims to make sure large banks cannot threaten the financial system in future crises and require government bailouts.
The FSB will update its requirements twice more over the next two years before they start going into effect in 2016.
Large banks are building capital to meet the new requirements known as “Basel III.”
For banks, holding more capital — in other words, funding themselves with more equity — makes it harder to wring profit from their balance sheets. But higher capital levels also give banks a bigger cushion to absorb losses, making it harder for them to go broke in bad times.
Barclays Plc and BNP Paribas were assigned the next highest buffer of 2 percent, according to the FSB. Eight banks including Bank of America Corp. and Goldman Sachs Group Inc. fell in the next highest bucket of 1.5 percent.
The remaining 14 banks will be required to hold 1 percent of extra capital. No bank was in the 3.5 percent range, which is considered a stick to stop banks from growing any bigger.
The latest statement was timed for a meeting of G20 finance ministers in Mexico tomorrow when governments will review progress in implementing a welter of pledges to reform finance after the 2007-2009 financial crisis.
“It’s a significant cost to all of the institutions, especially those at the higher end,” said Karen Petrou, managing partner of Federal Financial Analytics, a Washington-based financial services consulting company. Petrou noted it was up to national regulators to act on the rules for the buffers to have any teeth.
Citigroup spokeswoman Shannon Bell said the bank’s estimated Tier 1 common capital ratio of 8.6 percent under Basel III at the end of the third quarter was among the highest in the industry. The bank expects to continue to generate capital through earnings and the divestiture of non-core assets, she said.
JPMorgan declined to comment. Deutsche Bank and HSBC could not be immediately reached.
The Financial Stability Board published an initial list of 29 so-called systemically important banks in November 2011, but Thursday’s statement was the first time that it assigned specific capital buffers to each bank.
The FSB on Thursday reduced the list to 28 as it removed three institutions — Dexia, Commerzbank and Lloyds Banking Group — and added BBVA and Standard Chartered.
The capital requirements likely held some surprises for banks and their investors. For example, an industry source had told Reuters last year that a preliminary assessment showed Bank of America and Deutsche Bank would likely be in the 2 percent category. Bank of America ended up being lower and Deutsche Bank higher.
The additional requirements will begin to be applied in January 2016 and will be phased in by January 2019. The FSB’s list will be updated in November 2013 and 2014.


World Bank shareholders approve $13 billion capital increase

Updated 22 April 2018
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World Bank shareholders approve $13 billion capital increase

  • Capital increase follows three years of negotiations
  • Increase of $7.5 billion for main institution and $5.5 billion for IFC

World Bank shareholders approved a “historic” increase in the bank’s lending capacity late on Saturday after the United States backed a reform package that curbs loans and charges more for higher income countries like China.
World Bank President Jim Yong Kim said neither China nor any middle income countries was happy about the prospect of paying more for loans, but they agreed because of the overall increase in funds available.
The agreement, which also increase shares and voting power to large emerging market countries like China, was “a tremendous vote of confidence” in the institution that came after three years of tough negotiations, Kim said.
“World Bank Group bureaucrats don’t often jump around and high-five and hug each other,” Kim told a small group of reporters following the Spring meeting.
He said the increase was needed because even with the end of the global financial crisis, the bank has been called on to provide funding to address a new series of challenges facing poor countries, like climate change, refugees, pandemics, “all new things for us.”
The increase provides an additional $13 billion in “paid in” capital: $7.5 billion to the main institution and $5.5 billion to the bank’s private financing arm, the International Finance Corporation.
Kim said the increase will allow the bank to ramp up lending to an average of $100 billion a year through 2030, from $60 billion in 2017 and an expected $80 billion in 2018.
Countries will have five years to provide the funds, but can ask for a three-year extension. The last increase occurred in 2010 and added $5 billion to the bank’s capital and $200 million for the IFC.
The United States, the institution’s biggest shareholder, rejected the World Bank request in October and the administration of US President Donald Trump has argued that multilateral lending institutions should graduate countries that have grown enough to finance their own development, like China.
But US Treasury Secretary Steven Mnuchin on Saturday said Washington supports the increase because of the reforms to lending rules.
“I look at this as a package transaction... we support a capital increase on the World Bank, along with the associated reforms that they’re talking about making,” Mnuchin told reporters.
The increase requires legislative approval, but Mnuchin said he was hopeful Congress would back the plan. Kim also said he has had contact with representatives from both parties and received strong support.
In a statement to the World Bank’s governing committee, Mnuchin applauded the plan to “significantly shift lending to poorer clients.”
While he did not mention China by name, Mnuchin applauded the shift to a “new income-based lending allocation target and the re-introduction of differentiated pricing” for loans — meaning wealthier countries would pay higher interest rates.
“The latter will incentivize better-off, more creditworthy borrowers to seek market financing to meet their needs for development,” he said.
Mnuchin said the new arrangement, including for the IFC, “frees resources for countries that don’t have sustainable access to private capital markets.”P
China’s Vice Finance Minister Zhu Guangyao said Beijing supported increasing World Bank resources but had reservations about the agreement for changes in lending policies.
“We are concerned about some of the policy commitments in the capital package, such as those on graduation, maturity premium increase for loans and differentiated loan pricing based on national income per capita,” he said in a statement.
“We hope that the management take different national circumstances into full account in the implementation of the graduation policies... to ensure that these policies will not impede cooperation between the (bank) and upper middle income countries.”
Kim acknowledged that lending to China would decline, but only gradually. That means “whatever borrowing they do has to be as impactful as possible.”
And he noted that because of the capital increase, “we will be able to maintain volumes for middle income countries as a whole.”
Zhu said the capital increase is “a concrete measure to support multilateralism” at a time when “anti-globalization sentiments, unilateralism, protectionism in trade” were creating uncertainties in the global economy.