Four of the world’s largest banks – Citigroup, Deutsche Bank, HSBC and JPMorgan Chase – have been told by regulators that they should boost their capital reserves.
The Financial Stability Board (FSB), which is a G20 task force, said recent hefty fines, trading losses, money laundering and rate-rigging show operational risks are not being covered properly.
Finance ministers from the Group of 20 economies are meeting in Mexico this weekend to consider what more should be done to ensure that banks don’t need future taxpayer bailouts.
The FSB said in a report for the ministers that the recent spate of high-profile “events and failures” make a root-and-branch rethink of capital rules a matter of urgency.
“Supervisors have found real weaknesses in the assessment of capital for operational risk and in the models used and their assumptions, leading to the need for material increases in capital,” the FSB report said.
The watchdog said supervisors must look beyond risks and “follow the money” to examine whether the business model is sustainable and the bank’s board has the right “culture”.
Supervisors will need to be on their guard as financial institutions seek new ways to generate earnings, such as expanding further into wealth management and other areas where capital requirements are currently low, it said.