JPM, BNP Paribas and Goldman hit with higher capital surcharges

Banks slapped with extra 50 basis points of capital add-on

JP Morgan, BNP Paribas and Goldman Sachs increased their systemic footprint enough in 2020 to incur higher capital surcharges, the Financial Stability Board (FSB) announced today (November 23).

While the regulatory body made no changes to the current list of the 30 global systemically important banks (G-Sib), it moved the three banks to higher surcharge buckets – a sign the dealers now pose a higher systemic risk.



JP Morgan was moved up to systemic risk bucket 4 from bucket 3, attracting a 2.5% capital buffer – 50 basis points higher than in 2020. No other G-Sibs were placed into the same bucket.

BNP Paribas was shifted from systemic risk bucket 2 to bucket 3, with a capital buffer of 2%, also attracting an additional capital buffer of 50bp. The French bank joins Citi and HSBC in this group.

Goldman Sachs moves from systemic risk bucket 1 to 2. Its capital buffer rises to 1.5%, up from 1% last year.

What is it?

Global systemically important banks are designated using the Basel Committee on Banking Supervision’s assessment methodology, which measures systemic risk. Each bank is given a systemic risk score found by averaging the scores of five separate indicator categories: size; interconnectedness; complexity; cross-jurisdictional activity; and substitutability. 

These scores are found by taking the indicator category amounts, expressed in euros, and dividing them by the aggregate amount for that category summed across all banks in the G-Sib sample – made up of firms with more than €200 billion ($225 billion) in leverage exposure – and multiplying the result by 10,000.

The final score is the average of the five category sub-scores, with the substitutability score capped at 500bp. 

The G-Sibs are then grouped into five ‘buckets’ according to their respective scores, with the lowest scoring in bucket one and the highest in bucket five. Those firms designated as G-Sibs are subject to additional capital buffers of between 1% and 3.5% of their risk-weighted assets, depending on their score.

They are also required to stockpile bail-in-able debt and capital to meet total loss-absorbing capacity standards, and to put in place group-wide resolution plans for use in the event that they collapse.

Why it matters

As we correctly predicted in June, JP Morgan saw its systemic score increase by enough to tip it into a higher systemic risk bucket.

However, that JP Morgan is in a league of its own shouldn’t surprise anyone. The bank’s size and risk profile were already the largest in the world, and they only increased over the past 12 months, putting JPM in the second highest bucket designed by the FSB.

The bank’s management are likely to have been expecting the decision, but the higher capital buffer will nonetheless weigh on the bank’s ability to diverge capital onto more remunerative activities. 

While the FSB has determined that these three banks now pose more of a systemic risk, it’s important to note the G-Sib list has remained the same year on year. Graduating to G-Sib status is a big distinction, of sorts. Designated banks are subject to heightened supervision and enhanced prudential standards, which load on capital and administrative costs.

A series of upcoming Risk Quantum articles will analyse the data that informed this decision, and highlight the drivers behind the higher G-Sib capital surcharges for JP Morgan, BNP Paribas and Goldman Sachs.

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