Eight major banks in the US might save billions of dollars in capital thanks to a proposed rule change that the U.S. Federal Reserve is reportedly examining.
This could be a long-awaited victory for the banking sector.
What’s at stake is the methodology used by the central bank to determine the “GSIB surcharge,” an additional layer of capital that it imposed on US global systemically important banks (GSIBs) in 2015 to increase their safety and soundness.
As a way to account for economic growth and better reflect the size of the banks in the world economy, the Fed is reportedly thinking about revising the inputs it uses in the calculation, which it updated in 2015.
According to experts, updating those inputs or “coefficients” would lower the banks’ systemic scores and the consequent capital penalty.
Laptops 1000The Fed is still deliberating and no decisions have been made; this is the first time reporting on the discussions.
GSIBs have been fighting to lower the surcharge for years, but their efforts have not been very successful until recently.
Now, the central bank is willing to examine the matter, which is a significant improvement.
It also illustrates how banks are getting new chances to press for more long-awaited regulatory concessions as a result of a wider battle over capital regulations.
Some criteria, including their business methods, would determine the potential capital savings for the eight banks including JPMorgan, Citigroup, and Bank of America.
According to Fed data, the combined capital held by the U.S. GSIBs on account of the surcharge in the first quarter of 2024 was approximately $230 billion.
This suggests that even a minor alteration may lead to substantial savings for some banks.
