Twenty-nine banks were named on Friday as being so important to the global financial system that they are likely to need to hold more capital than rivals and must put in place a plan to allow them to be wound up without taxpayer help if they hit trouble.
Of the banks listed at the Group of 20 meeting in Cannes, 17 are from Europe, eight are U.S. banks, including Goldman Sachs, JP Morgan and Citigroup, and just four from Asia, including Bank of China.
The G20 endorsed a core capital requirement surcharge starting at 1 percent of risk-weighted assets and rising to 2.5 percent for the biggest banks -- which would be phased in over three years from 2016. The aim is to ensure taxpayers will never again be called on to foot the bill in a major banking crisis.
International industry watchdog the Financial Stability Board (FSB) also said the 29 banks need to meet resolution planning requirements, dubbed living wills, by the end of next year. National authorities can extend this requirement to other banks at their discretion, it said.
The list of global systemically important financial institutions -- known by regulators as G-SIFIs -- will be reviewed annually each November. The capital buffer will apply to banks identified in November 2014.
We consider these to be minimum rules, said Svein Andreson, secretary general of the FSB, which has been tasked by the G20 with coordinating the global regulatory response to the financial crisis.
He said a top level additional capital requirement of 3.5 percent could be imposed on banks as a deterrent.
There are no institutions currently classified as being in that bucket, but it is a disincentive for institutions to become more systemic, Andresen said.
The requirement surcharge comes on top of new Basel III rules imposing a 7 percent minimum core capital buffer for all banks.
NEW FSB HEAD
Mario Draghi, the outgoing chairman of the FSB, dismissed criticism that tougher capital rules could force big banks to curtail lending just as a fragile global economy still totters on the brink of recession.
We have several studies of the Basel III regulation introduction and they don't show any significant macroeconomic effect coming from the introduction of capital requirements foreseen in Basel III, Draghi, who took over as the president of the European Central Bank this month, told a news conference.
Mark Carney, governor of the Bank of Canada, will be the new head of a reinforced FSB, which will have a strengthened institutional framework. Swiss National Bank Chairman Philipp Hildebrand will be named as his deputy, with special responsibility for macroeconomic stability, Draghi said.
FEW ASIAN LENDERS
JPMorgan Chase Chief Executive Jamie Dimon has called the capital surcharge anti-American while big insurers are also battling against being saddled with their own surcharge, as are second-tier banks.
The world's largest bank by market value, Industrial and Commercial Bank of China, was not included on the G20-backed list.
Even if an institution is very large, it isn't necessarily systemically important, said Andresen, explaining the exclusion of some large Asian lenders.
They would be ranked very high simply in terms of sheer size ... but they have much less complexity than other institutions do, they have much less cross-border activity, they have less wholesale market funding, he said.
Other elements approved on Friday included common tools for supervisors to wind up ailing banks and more intensive supervision for large lenders.
The FSB also won G20 backing for plans for tighter regulations of the so-called shadow banking sector -- the $60 trillion non-banking financing industry which regulators want to make it harder and costlier for banks to do business with in a bid to curb risks.
Supervisors fear that as banks face tougher rules risky activities could migrate to this other part of the financial system which includes money market funds, securities lenders and special-purpose vehicles.
The FSB said the International Organization of Securities Commissions (IOSCO), which groups national market watchdogs, should take measures to address the risks of high frequency trading and so called off-exchange dark liquidity trading pools.
It also called on IOSCO to assess the Credit Default Swaps (CDS) market and its role in price formation.
(Additional reporting by Steve Slater; Editing by Greg Mahlich; Writing by Alexander Smith)