The world's biggest banks are likely to be hit by capital surcharges that increase progressively based on a lender's size, how connected it is to other banks and how easily it could be replaced in a crisis, global regulators have told the Financial Times.
The proposals would be good news for the huge, but domestically focused Chinese and Japanese banks and for second-tier European and US banks.
Financial regulators and central bankers from the world's biggest economies, meeting as the Financial Stability Board, are expected to decide this year which banks are systemically important financial institutions, or Sifis, and how much additional top-quality capital they will be required to hold against unforeseen losses.
Three participants in the process have told the Financial Times that a solid bloc has coalesced around the idea of graduated charges, although a few countries are still hoping for a flat requirement.
The FSB is due to propose the criteria for selecting Sifis in July and it will make formal recommendations on the surcharge to the meeting of the heads of the Group of 20 large economies in November.
Banks had feared that there would be a single large surcharge and warned that it would cut sharply into profitability and could dampen lending and innovation.
As currently envisioned, the Sifi charge would have between three to six gradations and would come on top of the global capital minimums set last year by the Basel committee on banking supervision.
The biggest European and US banks are expected to be hit with big surcharges because of their complex structure and global reach, while Chinese and Japanese banks might face lower requirements.
National regulators would apply the surcharges to the Sifis in their own jurisdictions.
"This opens up another whole series of issues which relate to the amount of discretion that the authorities will have," said Richard Reid, research director at the International Centre for Financial Regulation.
Second-tier European and US banks may also benefit from lower surcharges. "A 'tiered' system could particularly help some banks that are not facing funding issues to avoid dilutive capital raising," said Kinner Lakhani, Citigroup European banks analyst.
The form the surcharge will take is still under discussion. While equity is considered safest, FSB may allow Sifi banks to substitute a larger volume of contingent capital - debt that converts to equity in a crisis.
Didier Valet, the chief financial officer of Société Générale, referred to the possibility of multiple Sifi charges in an analyst call last week.
HSBC said on Wednesday it was expecting its surcharge to be between 2.5 and 3.5 per cent of assets, adjusted for risk.