A failure of JPMorgan Chase poses the greatest risk to the international financial system, even when compared with banks in Europe and Asia, according to a new government study.
The New York-based bank was given a “systematic importance score” of 5% in a report that measures the threat to global financial stability should any one of the world’s 30 largest and most-interconnected banks fail.
JPMorgan was followed by London’s HSBC, which scored 4.8%, and New York’s Citigroup, which scored 4.3%, according to the report, which was released Tuesday by the Office of Financial Research (OFR), a unit of the Treasury Department.
Some U.S. banks have griped about tighter capital requirements and other new regulations in the past, saying such restrictions place them at a disadvantage compared with oversees competitors. But OFR’s report showed that U.S. banks dominated the top 10 list of risky global banks, including JPMorgan at No. 1, Citigroup at No. 3, Bank of America at No. 7, Morgan Stanley at No. 9 and Goldman Sachs at No. 10 with a 2.5% risk assessment.
Wells Fargo scored No. 18, behind the Bank of China, and the Industrial and Commercial Bank of China.
OFR’s report also showed that many U.S. banks currently fall short of their European and Asian peers when it comes to their capital ratios relative to risk.
But that’s expected to change under new Federal Reserve rules, released last month, the report suggested.
In July, the Federal Reserve released stricter rules for determining how much capital the nation’s eight-largest banks must hold to protect against future calamities. Under the new rules, the Fed imposed a new “risk-based capital surcharge” for banks with at least $250 billion in total assets, or at least $10 billion in foreign exposure, that rely heavily on short-term wholesale funding, including overnight loans.
The surcharge will be phased in from Jan. 1, 2016, to Jan. 1, 2019, and will impact JPMorgan, Citigroup, Goldman Sachs, Morgan Stanley, Wells Fargo, State Street and the Bank of New York Mellon.
Measuring bank’s “systemic importance” and fiddling with their capital requirements has become regular practice by U.S. government agencies following the housing meltdown, which resulted in fears that many banks were too big to fail. That led to trillions in tax-payer dollars being spent toward bailing out the financial system, which was collapsing under the weight of complex mortgage securities that had turned sour.