Banks face dilemmas: GSIB surcharge proposal sparks mixed signals

TLDR: Banks and trade groups have raised concerns about the effectiveness and reporting challenges associated with the proposed recalibration of the Global Systemically Important Bank (GSIB) surcharge. The surcharge is an additional capital charge applied to the eight largest and most systemically important banks in the US. Proponents of the proposed changes argue that it would align banks’ capital requirements more closely with their systemic risk profile, prevent “window dressing,” and reduce the cliff effect. However, banks and trade groups have expressed concerns about the calibration of the surcharge and the potential impact of other regulatory changes. They argue that some exposures could be counted multiple times between different frameworks, leading to a greater overall capital increase than regulators anticipate. International banks with US operations have also criticized the proposal, which they believe unfairly targets them and violates established standards. The Federal Reserve has conducted a quantitative impact study to explore the potential effects of the proposed changes, but some groups have highlighted discrepancies between the proposed instructions and the proposed form for reporting. The proposed GSIB surcharge received fewer comments than the Basel III endgame proposal, with 26 letters compared to 237.