Basel III Calls for Higher Standards on These Systematically Important Financials
Today the Basel Committee on banking supervision, a global financial regulatory group, released a list of 28 banks it identified as systematically important to the global financial system, recommending that they be held to higher standards by way of increased capital reserve requirements. More on how a bank (NYSE:KBE) is deemed a “SIFI” from MarketWatch, “The list of criteria designed by the Basel committee is essentially based on indicators, which include a bank’s size, its interconnectedness–reflecting the contractual obligations it has entered into with other banks–as well as its substitutability, which is an indication of how easily it can be replaced by other financial institutions in a particular activity or market segment.”
The committee recommended that the SIFI banks be required to hold an additional 1-2.5% in capital reserves of risk-weighted assets. The most important banks may be required to hold an additional 1% in reserves, on top of the new stipulations. Basel’s new rules will be phased in gradually by 2016, not going into full effect until early 2019. The names of the 28 banks were not released, though its highly likely that leading American lenders, such as Bank of America (NYSE:BAC), JP Morgan (NYSE:JPM), Citigroup (NYSE:C), Goldman-Sachs (NYSE:GS), Wells Fargo (NYSE:WFC), and others are among the group.