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SIFI surcharge could reach Big Four

16 May 2011 4:19PM
Support appears to be growing for a proposal to levy extra capital charges on the world's largest banks in a way that could yet impose higher capital requirements on Australia's Big Four banks.Banking Day reported in March that Australian officials were concerned by a proposal to create several classes of "systemically important financial institutions", or SIFIs. These different classes of SIFI would face different capital surcharges, on top of capital requirements already imposed under the Basel III rules.The SIFI proposal was originally expected to apply to only the largest European and US-based global banks. But that proposal met with fierce opposition from banks that would have been included in this narrow definition, such as HSBC, and led to the proposal for multiple SIFI classes.The Financial Times reported on Friday that "three participants in the process" had told it support was now coalescing around a version of the proposal that would impose "graduated charges".The proposal would increase capital surcharges progressively, depending on a lender's size, its connections to other banks, and how easily it could be replaced in a crisisThe FT report did not mention Australia, but suggested that Chinese and Japanese banks would be hit by the requirements. Australia's Big Four banks have similar or greater dominance in their home market, but they have lower assets than Chinese and Japanese banks. It is not yet clear whether the latest proposal would cover banks, like Australia's Big Four, which have both smaller asset bases and limited global connections.Australia's regulators have consistently said that Australia's Big Four banks are already close to complying with the basic Basel III capital requirements.But an additional half or one per cent equity requirement would give the Big Four a more substantial capital-raising task over the next few years.US Treasury Secretary Timothy Geithner increased the attention being given to SIFIs when he said last week that regulators' identification of SIFIs was "in some ways the central choice" in US financial reform.The Basel Financial Stability Board is due to recommend SIFI rules to the heads of the Group of 20 large economies when they meet in November.

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