Many of the largest European and American banks have been lobbying hard against the new surcharge, but these efforts appear to be failing.
In a speech last week, Fed Governor Daniel Tarullo said additional capital requirements are needed to prevent systemwide financial instability that could be caused by the failure of one of the world’s biggest or most interconnected banks. Tarullo, who is the Fed's point man on bank regulation reform, said the Fed was considering capital requirements that could amount to between 20 percent to more than 100 percent over the Basel III requirements.
There’s a growing consensus the regulators will likely propose a uniform surcharge of 3 percent on the biggest banks. Another alternative would be to have a sliding scale surcharge that would grow with the size of the bank. Some have suggested a surcharge that could be moved counter-cyclically, requiring more capital in good times and allowing banks to operate with thinner capital when the economy needs more lending.
The Dodd-Frank law requires regulators to impose tougher capital requirements—but punts on the exact shape of those regulations.
Tarullo has said he favors the sliding scale version of the surcharge that would rise according to the "expected impact" of a bank's failure on the financial system.
Earlier this week, Dallas Fed President Richard Fisher said that the "top 10" banks in the U.S. should be subject to stricter requirements than smaller banks.
"Enhanced supervision can be implemented on a graduated scale, based on the extent of assets beyond $50 billion and possibly other factors," Fisher said. "Let us do that fully, then, applying these measures along a highly graduated scale, with only minimal added mandates directed at mid-tier banking organizations."
The views of Tarullo and Fisher obviously would impose disadvantages on banks that grow as large as JPMorgan Chase . This is probably no accident. In the past, Fisher has said that he favors breaking up the biggest banks.
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