Financial Trade Associations Support Effort to Improve GSIB Surcharge, Urge Full Recalibration to Reflect Actual Risk
“Our member institutions play an essential role in the continued growth and prosperity of the U.S. economy. The ability of our member institutions to play this role, however, critically depends on efficiently calibrated capital requirements,” the associations stated.
WASHINGTON, D.C. – The Federal Reserve Board’s (FRB) proposed reforms to the Global Systemically Important Bank (GSIB) surcharge are a constructive step toward improving the framework but should fully recalibrate the surcharge to reflect economic and financial system growth over the entire period that has elapsed since the original calibration period that was used in the 2015 final rule, the Financial Services Forum and Bank Policy Institute said in a comment letter filed today.
Unfortunately, the proposal does not fully account for growth since the original data period that was used to finalize the rule in 2015, resulting in a calibration that does not accurately reflect underlying conditions and would impact banks’ ability to continue to play an essential role in providing credit, liquidity, and key financial services. The resulting calibration continues to perpetuate a capital standard for U.S. GSIBs that is more stringent than international standards and creates a regulator-designed competitive imbalance for U.S. GSIBs that hamstrings their efforts to support the U.S. economy.
“We commend the FRB for acknowledging and seeking to address the 2015 Rule’s longstanding methodological flaws that have resulted in over-calibrated GSIB surcharges. In particular, the initial and ongoing adjustments to the method 2 coefficients to account for economic growth represent a meaningful step towards a surcharge framework that better aligns with actual systemic risk. It is critical however, that these adjustments fully reflect the inflation in method 2 scores since the original calibration period,” the associations said.
Additionally, the comment letter urges a balanced approach to averaging, stating that more frequent averaging must be justified by a corresponding benefit to systemic risk. It further emphasizes that implementation should avoid creating volatility in capital requirements, ensuring the framework does not produce temporary increases followed by declines that introduce unnecessary instability.
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About Financial Services Forum
The Financial Services Forum is an economic policy and advocacy organization whose members are the eight largest and most diversified financial institutions headquartered in the United States. Forum member institutions are a leading source of lending and investment in the United States and serve millions of consumers, businesses, investors, and communities throughout the country. The Forum promotes policies that support savings and investment, financial inclusion, deep and liquid capital markets, a competitive global marketplace, and a sound financial system.
About Bank Policy Institute
The Bank Policy Institute is a nonpartisan public policy, research and advocacy group that represents universal banks, regional banks and the major foreign banks doing business in the United States. The Institute produces academic research and analysis on regulatory and monetary policy topics, analyzes and comments on proposed regulations, and represents the financial services industry with respect to cybersecurity, fraud and other information security issues.
Media Contacts
Laura Peavey
Financial Services Forum
lpeavey@fsforum.com
Tara Payne
Bank Policy Institute
tara.payne@bpi.com