Bloomberg reports that Citigroup, HSBC and JPMorgan Chase join Deutsche Bank as firms that will be targeted for a capital surcharge of 2.5%, according to an updated list published Thursday by the Financial Stability Board. The change means Bank of America already exceeds requirements, while Deutsche Bank would be more than 2% points below the new minimum of 9.5%.
'That limits earnings potential for Citigroup, JPMorgan and Deutsche Bank compared to Bank of America, all other things being equal, so it’s certainly a competitive advantage for them', said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business.
The capital surcharges for systemic banks, set in half-percentage-point increments ranging from 1% to 2.5%, come on top of agreements by the Basel Committee on Banking Supervision to more than triple the core reserves they must hold against possible losses. The extra requirements are calculated against banks’ interconnectedness, size, complexity, global reach, and the ability of other firms to take over their functions if they fail.
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