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Citi, JPMorgan Hit with High Capital Surcharge

NOV 2, 2012 12:56pm ET
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The Financial Stability Board delivered a blow to Citigroup and JPMorgan Chase this week, saying they will pay a 2.5% capital surcharge under Basel III while their competitors face less stringent requirements.

The international regulatory body designated eight U.S. firms last year as global systemically important banks, saying they must hold between 1% to 2.5% in extra capital. But Thursday marked the first time that the FSB detailed the exact requirements for each company.

Only Citi and JPMorgan face the highest surcharge, while Bank of America, Bank of New York Mellon, Goldman Sachs and Morgan Stanley must hold 1.5% in extra capital. State Street and Wells Fargo, meanwhile, received the lowest surcharge of 1%.

Citi, JPM and B of A are all top players in residential finance, though all three are cutting back in the space to some degree.

Overall, the FSB designated 28 firms – one less than last year – as globally significant. Just four companies world-wide face the 2.5% capital charge, with HSBC Holdings and Deutsche Bank also singled out by regulators.

Regulators added that they may assign an even higher surcharge in the future of 3.5%, primarily as a deterrent to keep banks from becoming even larger and increasing their systemic footprint.

The surcharge will not officially kick in until 2016, and even then it will only apply to those firms designated in November 2014 (potentially allowing firms to be added or dropped off the list of G-SIBs).

Still, analysts believe firms will likely have to hold the additional capital much sooner due to market expectations.

Citi said it is already prepping for the higher capital requirements, which would total 9.5%.

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