FSA proposes international capital surcharge for important lenders
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The Financial Services Authority has issued a discussion paper on policy measures to address the problem of systemically important banks, including an international capital surcharge.
The paper also examines the trade-offs involved in increasing capital and liquidity requirements, and stresses the need to assess the cumulative impact of reforms. It identifies the dangers posed by firms that are seen as either too big or too interconnected to fail, or too big to rescue.
It details a range of policy options including the creation of what it calls narrow banks to provide the basis for an informed debate, but also outlines the position the FSA is taking in an international context.
It says there is a strong case for applying some form of capital surcharge internationally for important banks. Surcharges could be proportionate to banks’ importance, avoiding the pitfalls of setting specific thresholds.
A surcharge could be combined with an approach to global banking groups that places emphasis on the standalone sustainability of national subsidiaries, with the understanding that home country authorities will not be held respon- sible for the rescue of entire banking groups.
The regulator says that the more banking groups are organised on this basis, the lower the capital surcharge at group level might need to be.
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