by Pete Schroeder

WASHINGTON (Reuters) – The U.S. Federal Reserve is considering a rule change that could reduce capital requirements for the nation’s eight largest banks, saving billions of dollars, according to four people familiar with the matter.

The change is based on the calculation of additional capital imposed by the Fed on banks deemed to be of global systemic importance (GSIB), known as the “GSIB surcharge” and which was implemented in 2015 to strengthen the solidity of the affected institutions.

The Fed is considering updating the data it uses in the calculation to adjust for economic growth and thus more accurately reflect the size of banks relative to the global economy, the people said.

Updating these data or “coefficients” would reduce the systemic impact of banks and therefore the resulting additional capital required, said the sources, who requested anonymity.

The Fed’s deliberations are ongoing and no decision has been made, the sources said.

But the central bank’s willingness to review the issue is a major step forward in the campaign by big banks to reduce their capital surcharges.

The potential savings for the eight banks – JPMorgan, Citi, Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley, BNY Mellon and State Street – would depend on a number of factors, including their business models.

Together, the eight institutions held about $230 billion in surcharge-related capital in the first quarter of 2024, according to Fed data, suggesting that even a minor change could result in significant savings for some banks.

A 0.5% surcharge would be worth more than $8 billion each to JPMorgan and Bank of America, according to Reuters calculations. The big banks say they can pump that cash back into the economy through loans.

Spokespeople for the banks involved declined to comment or did not immediately respond to requests for comment.

Introduced following the global financial crisis of 2007-2008, the capital surcharge aims to strengthen the resilience of the largest banks given the threat they could pose to financial stability due to their size.

In 2015, the Fed set coefficients related to a bank’s size, interconnectedness, complexity and cross-border activity using data from 2012 and 2013. It said at the time that the framework would be revised periodically.

The eight major banks affected by the surcharge say the review is long overdue. Using an outdated methodology makes them appear larger than they are relative to the global economy, they argue.

Fed officials have long been reluctant to revise the coefficients, fearing they would be seen as too favorable to the largest banking players, according to the sources and other industry officials.

But the debate has been relaunched with the expected transposition into American law of the “Basel III” rules, which should lead banks to calculate more strictly the risks they carry on their balance sheets. To the great displeasure of the major American banking players, who have engaged in intense lobbying to highlight the risks of Basel III.

Some industry officials have argued in meetings with the Fed that updating the surcharge factors would be a way to offset the impact of the Basel III implementation.

(Reporting by Pete Schroeder, with contributions by Paritosh Bansal, Saeed Azhar, Tatiana Bautzer and Nupur Anand in New York; Editing by Blandine Hénault)

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