G-20 to Consider List of 50 Important Banks

By Mark Deen and Cheyenne Hopkins - Oct 16, 2011 5:00 AM GMT+0700

Group of 20 governments are considering naming as many as 50 banks as systemically important to the global economy and in need of extra capital, two officials from G-20 nations said.

The list, drawn up by Financial Stability Board Chairman Mario Draghi, will be published in time for a G-20 leaders meeting in Cannes, France, on Nov. 3-4, said the officials, who declined to be identified because the discussions are private. Regulators have said the banks named will be forced to take on more capital.

Regulators are at loggerheads with some institutions over the additional capital rules, with lenders arguing the requirements may harm the world’s economic recovery. Jamie Dimon, chief executive officer of JPMorgan Chase & Co. (JPM), and Bank of America Corp. (BAC) CEO Brian T. Moynihan are among bankers who have suggested this year that the new rules will constrain lending and hurt growth.

G-20 finance ministers and central bankers meeting in Paris yesterday discussed the standards that will be applied when compiling the list of systemic banks.

Twenty-nine to 40 banks could be designated depending on the potential impact on financial markets, according to one person familiar with the matter. Two officials from G-20 nations said the list could even be expanded to about 50 institutions. The regulators are also contemplating including the institutions in categories according to their ability to absorb losses.

G-20 Statement

French Finance Minister Francois Baroin confirmed at a news conference that the G-20 members will publish a list of the systemic institutions at the Cannes summit next month. In its communiqué, the G-20 said it endorsed a framework to reduce the risks posed by systemically important institutions through strengthened supervision, a cross-border resolution plan and additional capital requirements.

The FSB is assessing how systemically important institutions are on the basis on five broad categories: size, interconnectedness, lack of substitutability, global activity and complexity.

The Basel Committee on Banking Supervision said in July that, based on data available at the time, 28 banks would be considered systemic and face an additional capital surcharge.

The framework for systemic institutions was set to be the focus of the G-20 meetings before Europe’s sovereign debt crisis intensified. The Basel panel announced in June that it had completed its work on the surcharge rules, and the FSB approved them on Oct. 3. The FSB brings together finance ministry officials, central bank governors and regulators. Lenders whose collapse could roil global markets will face global capital surcharges as high as 2.5 percentage points on top of Basel III capital standards.

Carney Leading Candidate

Bank of Canada Governor Mark Carney is the leading candidate to replace Draghi as head of the FSB, two officials said on condition of anonymity because a final decision is pending. Draghi becomes president of the European Central Bank on Nov. 1

Carney, 46, worked at Goldman Sachs Group Inc. for more than a decade before becoming a policy maker in 2003 and then chief of Canada’s central bank in 2008. At a gathering of bank executives on Sept. 23 in Washington, Dimon, 55, attacked Carney on the Basel III capital surcharge rules, saying many of them discriminated against U.S. banks and he would continue to describe them as “anti-American.”

One official said global regulators recommended areas for strengthening oversight of shadow banks and that they will contemplate plans for such institutions in 2012. The FSB suggested assessing banks’ involvement with shadow banks, reform of money-market funds, securitization regulation, supervision with an emphasis on risk and scale, and regulation of lending and repo markets, the official said.

To contact the reporters on this story: Mark Deen in Paris at markdeen@bloomberg.net; Cheyenne Hopkins at Chopkins19@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net