Bank Capital Requirements: Regulatory Capital Surcharge for Global Systemically Important Banks

Sullivan & Cromwell LLP - June 26, 2011

On June 25, 2011, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, issued a release on new capital measures for global systemically important banks (“G-SIBs”). The new capital measures focus on an additional progressive Common Equity Tier 1 capital requirement ranging from 1% to 2.5%, depending on a G-SIB’s systemic importance. Moreover, an additional 1% surcharge may be applied in circumstances where a G-SIB expands. In determining whether a bank is a G-SIB and the level of additional capital required, there will be an “indicator-based approach” comprised of five broad categories: size, interconnectedness, lack of substitutability, global (cross-jurisdictional) activity and complexity. The release also addresses phase-in periods and continuing review of the use of contingent capital.