The addition of Toronto Dominion brings the total number of systemic banks to 30.Andrew Vaughan/The Canadian Press
Canada’s second-biggest lender, Toronto Dominion Bank, has been added to a global list of systemic banks that must hold extra capital, while Deutsche Bank has dropped a rank within the list, the Financial Stability Board (FSB) said on Friday.
The international body, based in Basel, Switzerland, was updating its list of systemic banks, introduced in the aftermath of the global financial crisis a decade ago, when taxpayers in some countries had to bail out struggling lenders.
The addition of TD Bank brings the total number of systemic banks to 30.
Systemic banks are slotted into one of five buckets, although the fifth – where banks would be required to hold an extra 3.5 per cent of capital to risk-weighted assets on top of minimum requirements – remains empty.
TD has been placed in the first bucket, with a 1-per-cent surcharge.
TD, along with Canada’s five other big banks, is already designated a domestic systemically important bank, which subjects it to a 1-per-cent common equity capital surcharge, according to Canada’s banking regulator. Canadian banks are required to hold 8 per cent of capital to risk-weighed assets, and an additional capital conservation buffer of 2.5 per cent.
“Management does not expect any impact to TD’s capital position with this designation,” TD said in a statement.
The bank is “well-positioned to meet the [global systemically important bank] requirements starting in November 2020,” Canada’s Office of the Superintendent of Financial Institutions, which regulates the industry, said in a separate statement.
JP Morgan Chase remains the sole occupier of the fourth bucket, with a 2.5-per-cent capital surcharge.
Citigroup and HSBC are in the third bucket, with a 2-per-cent surcharge.
Deutsche Bank has dropped from the third to the second bucket, which has a 1.5-per-cent surcharge, in a sign of how the struggling German lender is shrinking and simplifying its operations.
“This was primarily driven by reductions in leverage, strategic adjustments in the bank’s business and geographic perimeter and lower derivative volumes, together with wider industry developments,” Deutsche Bank said in a statement.
Deutsche Bank is, however, still required to meet a 2-per-cent extra capital requirement as a “domestic systemically important bank,” and therefore the overall capital buffer is expected to remain unchanged, the German bank said.
Changes to capital requirements come into effect in January, 2021.
Banks on the list also face more onerous requirements for issuing special bonds that can be written down to replenish capital burnt in a crisis to shield taxpayers.