Speaking at annual investor conference in New York on Wednesday, Goldman Sachs (NYSE:GS) Chief Executive Officer Lloyd C. Blankfein discussed how the impending Basel III global regulations will affect the bank.
The rules, which are scheduled to be introduced from 2013 until 2018, will increase the risk the bank must assign to its assets, a factor that will change the size of the company’s capital buffer. While the new regulations will not be in place for several more weeks, the bank has already determined how they will impact its risk-weighted assets.
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Under the new rules, Goldman Sachs will have $728 billion in risk- weighted assets, an increase of 67 percent from Basel 1. But by reducing capital risk and market risk by $18 billion and $11 billion, respectively, the bank intends to lower that figure to $700 billion by the end of next year.
In comparison, Basel III will increase risk-weighted assets for larger banks like Citigroup (NYSE:C) and JPMorgan Chase (NYSE:JPM) only slightly because of their size and business mix. Citigroup’s RWAs will increase by 27 percent, while JPMorgan’s will rise 28 percent.
“For more than a decade, larger size and complexity were viewed entirely as synergistic and virtuous,” said Blankfein in his presentation at the conference. “However, Basel 3 introduces a series of capital surcharges associated with size and complexity that will effectively raise the barriers to entry in some businesses, and force some institutions to be more disciplined about their resource allocation.”
The Financial Stability Board announced last month that capital surcharges would be implemented in addition to the Basel III regulations. Goldman Sachs will be required to hold an additional 1.5 percent surcharge above the 7 percent minimum. JPMorgan, Citigroup, Deutsche Bank (NYSE:DB) and HSBC (NYSE:HBC) were given a 2.5 percent surcharge because they are considered more systemically important.
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