U.S. banks dominate the list of the biggest and most systemically important banks in the world, with JPMorgan Chase the biggest, according to a new report from a U.S. regulator.
In a paper released Tuesday, the Office of Financial Research ranked the biggest banks around the world on criteria determining which ones are most “systemically important” and would have the biggest impact on markets if they failed.
JPMorgan Chase, with nearly $4 trillion in total exposure, is the biggest. Five of the top 10 are U.S. banks, including Citigroup, Bank of America, Morgan Stanley and Goldman Sachs.
After ranking the world’s banks, the Office of Financial Research concluded that “banks with higher systemic importance scores do not consistently have higher levels of risk-based capital.”
The Federal Reserve last month set a new rule for additional capital requirements for the biggest banks in an attempt to bring size and capital requirements into alignment. JPMorgan was the only bank in the highest bracket for capital requirements and will have to increase capital by $12.5 billion by the time the rule is fully phased in by 2019.
Higher capital levels, which are calculated as a share of banks’ risk-weighted assets, require banks to rely less on loans that can dry up during a crisis and more on equity. Regulators justified the surcharge on the grounds that it would force banks so big that they could drag down the financial system to either shrink in size or raise enough capital to become safer.
The Office of Financial Research, housed within the Treasury, was created as part of the 2010 Dodd-Frank financial reform law to provide regulators with information about trends and developments they might otherwise miss.
The report released Tuesday finds that U.S. banks rank particularly high on two measures of systemic importance. The first is sustainability, or the extent to which the banks provide financial infrastructure that would be hard to replicate if they failed. The second is complexity, or the amount each bank engages in trading, including derivatives trading, and holds in illiquid assets.
Of all the global systemically important banks, according to the research, the two largest — JPMorgan and London-headquartered HSBC — rank among the lowest on a key measure of capital.
