Industrial & Commercial Bank of China Ltd (ICBC, 中國工商銀行) was added to the list of too-big-to-fail banks as global regulators revised the roster of lenders that must hold extra capital to prevent another financial crisis.
ICBC, China’s largest bank by assets, was the only firm joining the updated list of systemically important firms released on Monday by the Financial Stability Board. Lenders whose capital buffers were cut from last year included Citigroup Inc, Deutsche Bank AG and Bank of New York Mellon Corp, while Credit Agricole Group was told to add more.
Regulators are ranking financial firms by their potential to cause a global meltdown and demanding bigger financial cushions from them to avert any repeat of the 2008 credit freeze. While ICBC is the world’s most profitable lender, bad loans are rising at China’s top banks after a five-year credit spree.
As for Western companies, CreditSights Inc analyst Pri de Silva said he was surprised by some of the cuts.
Are these institutions “less interconnected than they were a year ago? That doesn’t seem likely,” the New York-based De Silva said.
Some lenders may have gone “to the powers that be and made the case that they should be viewed from a different lens,” he said.
The revised list leaves only New York-based JPMorgan Chase & Co, the largest US bank by assets, and London-based HSBC Holdings PLC, Europe’s biggest by market value, in line to face the top 2.5 percent surcharge.
Citigroup and Frankfurt-based Deutsche Bank must meet a 2 percent target after previously being in the top category. Beijing-based ICBC’s surcharge is 1 percent, the same as Bank of China Ltd (中國銀行), which was already included last year.
BNY Mellon, the world’s largest custody bank and based in New York, also dropped into the 1 percent cohort. Only Paris-based Credit Agricole was saddled with an increase, with the surcharge level rising to 1.5 percent from 1 percent.
The surcharge represents the amount of capital a bank must have beyond the minimums already set by international regulators to fortify banks against their own losses or an external economic shock.
Officials decided in 2010 to more than triple thresholds for the core capital that banks should keep to absorb losses. The FSB produces the list in preparation for capital rules scheduled to be phased in starting in 2016.
ICBC will not need to raise more capital because its ratios exceeded minimum regulatory requirements, the bank said in an e-mailed statement. As a global systemically important bank, ICBC said it needs to meet a minimum core tier 1 capital ratio of 8 percent.
The lender had a ratio of 10.48 percent as of June 30, while Bank of China’s was 9.27 percent, stock-exchange filings in August show. Those levels were higher than the 8.5 percent the China Banking Regulatory Commission requires the nation’s systemically important banks to hold by the end of 2018.