Bank capital surcharges have long been advocated by PrefBlog; with the idea, for instance, that Risk-Weighted Assets in excess of – say – $250-billion should attract a progressively higher surcharge. There are other proposals around, naturally, many of them dependent upon a regulatory evaluation of linkages between banks on the grounds that RWA is not an ideal proxy for systemic importance.
One way or another, the idea seems to be achieving at least some degree of consensus. Professor Axel A Weber, President of the Deutsche Bundesbank, delivered a speech at the International Capital Markets and Emerging Markets Roundtable, Institute of International Finance (IIF), Washington DC, 25 April 2010:
Other major elements of reform centre on the problem of systemically important financial institutions. Here, the reform of the Basel framework is part of the solution, too, as it will help to improve the capacity of such institutions to absorb losses. However, what is required is a more comprehensive approach which specifically ensures that accountability is brought back into the game. Necessary proposals that go beyond the reformed capital and liquidity framework include capital surcharges for systemically important institutions, better resolution regimes and a strengthening of the financial infrastructure. Commissioned by the G20, the FSB is already working towards that goal. Nevertheless, some thorny issues are still waiting to be resolved, such as the calibration of measures to assess systemic relevance.
This builds on a paper by Hervé Hannoun Deputy General Manager, Bank for International Settlements, TOWARDS A GLOBAL FINANCIAL STABILITY FRAMEWORK:
Asian central banks have taken the lead in implementing various macroprudential tools before and following the experience of the 1997 crisis, as can be seen in Table 6. Their knowledge of these tools is particularly rich compared with that of other regions, and their experience provides interesting lessons for other countries.
For example, Asian countries are using countercyclical provisioning, loan-to-value ratios and direct controls on lending to specific sectors to manage procyclicality in their financial systems. They are also addressing aggregate risk in the financial system through capital surcharges and liquidity requirements.
These comments are somewhat more approving than those quoted in the post BIS Schedule for Regulatory Reform
[…] Bank capital surcharges were last discussed on PrefBlog in the post Bank Capital Surcharge Proposals Gaining Ground. […]
[…] have mixed views on this. I reported last August that the push towards surcharges was gaining ground and have been advocating surcharges based on size since (at least!) March […]