Board of Governors of the Federal Reserve System

The Federal Reserve Board on Tuesday proposed a rule to further strengthen the capital positions of the largest, most systemically important U.S. bank holding companies.

The proposal establishes a methodology to identify whether a U.S. bank holding company is a global systemically important banking organization, or GSIB. A firm identified as a GSIB would be subject to a risk-based capital surcharge that is calibrated based on its systemic risk profile. Eight U.S. firms would currently be identified as GSIBs under the proposal: Bank of America Corporation, The Bank of New York Mellon Corporation, Citigroup Inc., The Goldman Sachs Group, Inc., JPMorgan Chase & Co., Morgan Stanley, State Street Corporation, and Wells Fargo & Company.

"This framework would provide incentives to these banking organizations to hold substantially increased levels of high-quality capital as a percentage of their risk-weighted assets," Chair Janet L. Yellen said. "This, in turn, would encourage such firms to reduce their systemic footprint and lessen the threat that their failure could pose to overall financial stability."

The proposal builds on a GSIB capital surcharge framework agreed to by the Basel Committee on Banking Supervision (BCBS), augmented to address risks to U.S. financial stability. A firm identified as a GSIB would calculate its GSIB surcharge under two methods and use the higher of the two surcharges.

The first method would consider the GSIB's size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity, consistent with a methodology developed by the Basel Committee. The second would use similar inputs, but would replace substitutability with use of short-term wholesale funding and would generally result in significantly higher surcharges than the BCBS framework. Under the proposal, estimated surcharges for bank holding companies that would be identified as GSIBs currently would range from 1.0 to 4.5 percent of a firm's total risk-weighted assets.

"The higher capital levels required under this proposal would mean that the stringency of the applicable prudential standards will be proportional to the systemic importance of each bank," Governor Daniel K. Tarullo said.

Failure to maintain the capital surcharge would subject the GSIB to restrictions on capital distributions and discretionary bonus payments. The proposal would be phased in beginning on January 1, 2016, becoming fully effective on January 1, 2019.

Comments on the proposed rule will be received through February 28, 2015.

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