Global banking regulators are discussing how to use extra capital cushions as a means of stopping very big lenders getting even larger, a source familiar with the talks said on Friday.
World leaders have asked the Basel Committee on Banking Supervision to flesh out a package of extra safeguards on big banks to lessen the need for taxpayer bailouts should one of them get into trouble again.
A source familiar with the talks told Reuters on Friday the committee was looking at how this package could also stop very big lenders growing further and representing more risk to the system.
"They may want to create some disincentives to become even more SIFI," the source said. SIFIs -- systemically important financial institutions such as Deutsche Bank, Goldman Sachs, HSBC
and UBS -- would come under the scope of the new measures.
The package being worked on will require SIFIs to hold extra capital based on a sliding scale linked to risk and size.
Regulators, analysts and banking officials have said for months the range being worked on was 1-3 percent of capital on top of a bank's minimum requirements.
On Friday, German business daily Handelsblatt, quoting an unnamed source familiar with the negotiations, reported regulators were also mulling a new category for systemic relevance which no bank has yet attained.
A "super systemic" lender would be forced to add a four percent capital cushion, a threshold which committee members hope will discourage banks from getting even bigger.
The Basel Committee declined to comment.
It was expected to publish its SIFI proposal for consultation in coming months, perhaps in June.
Big banks have been lobbying furiously to water down the plans.
Deutsche Bank chief executive Josef Ackermann, who also chairs global banking lobby IIF, said this week current efforts to identify systemic banks were inherently flawed and "spurious."
The SIFI package is part of wider efforts to tackle "too important to fail" banks so they are not under any illusion they would be rescued because of their sheer size and importance.
The Group of 20 countries (G20) had wanted the SIFI package completed by last November but were split over whether there should be mandatory capital surcharges.
It now hopes to ink a deal in November.
The extra capital would come on top of tougher requirements known as Basel III for all sizes of banks from 2013.
Regulators say there has been progress on defining what is a SIFI based on size, complexity, interconnectedness with the rest of the financial system and substitutability, or how difficult it would be to fill a gap left by a SIFI going bust.
Wrangling continues over what can go into the extra buffer.
Britain wants the buffer to be pure equity for maximum loss absorption in a crisis. Countries like France and Germany oppose a capital surcharge, while others say lower quality instruments such as hybrid debt or contingent capital (CoCos) could be used.
British Financial Services Authority chairman Adair Turner said last week he expected a deal on SIFIs to include a buffer requirement though unlikely made up of only pure capital.
Debate now centers on how much contingent capital could be deemed to be equivalent to pure equity, he said.
But even if a SIFI package was agreed, there will still likely be debate over how and when it would be phased in.
Meanwhile, a surcharge of sorts is already being introduced in countries like Britain, Ireland, Spain, Sweden and Switzerland. They are pushing banks to hold core Tier 1 capital ratios of 10 percent or more, well above the new Basel III minimum of 7 percent being phased in from 2013.
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