LONDON – Global banking regulators proposed measures on Thursday to curb “unacceptable” attempts by the world’s biggest banks to game the rules to avoid heavier capital requirements.
About 30 globally integrated banks (G-SIBs), such as JPMorgan, HSBC, BNP Paribas and Morgan Stanley, are required to hold more capital than smaller domestic peers, based on a range of factors that determine which “bucket” they are slotted into , and therefore how much additional capital they must hold.
The rules were introduced a decade ago after many lenders were bailed out by taxpayers in the global financial crisis.
“The proposed revisions are intended to limit the ability of banks to lower their G-SIB scores through window dressing,” the Basel Committee said in a statement.
The aim is to stop “regulatory arbitrage conduct” which seeks to temporarily reduce the perceived systemic footprint of banks around the reference dates used for the reporting and public disclosure of G-SIB scores.
“This will be achieved by requiring banks participating in the G-SIB assessment exercise to report and disclose most G-SIB indicators based on an average of values during the reporting year, rather than year-end values.”
The proposals are open for public consultation until June 7.
“The Committee sees the benefits of a broad application of the revisions to all banks participating in the G-SIB assessment, but it also seeks feedback on options that apply those changes to a narrower set of banks to reduce the reporting burden,” said the committee
Basel is proposing a start date of January 2027 for the proposed changes.
Banking regulators from the world’s major financial centers are members of the Basel Committee and are committed to applying agreed rules in their national handbooks for lenders.
The Bank for International Settlements in Basel, Switzerland, where the Committee is based, said in a 2021 paper that up to 13 banks in the European Union would have faced more intensive supervision and higher capital requirements without a transparent outfit.
The committee published a study on Thursday of how the implementation of its G-SIB rules has evolved over the past decade, saying it showed that the banks have seen their role diminish across all categories of systemic importance.
“G-SIBs seem to adjust their balance sheets after the introduction of the framework,” the study said.