While G-SIB Capital Surcharges for 2026 will be determined in November this year, we quantify now for all U.S. G-SIBs, which ones are likely to face an increase in the capital charge and look into the details and implications.

Background

Global Systemically Important Banks (G-SIBs), are subject to capital surcharges. The current charges were determined in November 2024, based on financial risk reports as of Dec 31, 2023 and have been effective for the year 2025.

In a couple of months, we will get new calculations based on Dec 31, 2024 financial risk reports, which will determine the capital surcharges effective for 2026.

U.S. Banks, of which 8 are currently G-SIBs, have charges determined by the higher of two methods; Method 1 (Basel methodology) or Method 2 ( Federal Reserve methodology).

(A good explanation of these methodologies was written by Chris on the Clarus Blog in Dec 2019, see here and here). For U.S. Banks, Method 2 has always resulted in a higher capital surcharge.

The main difference between the two methods is that:

• Method 2 replaces the Basel Substitutability metrics with a short-term funding metric and
• Method 2 uses fixed-coefficients rather than market-shared based coefficients, making it simpler to calculate than Method 1, which requires the total denominator sums for all 77 banks in the sample.

BHC Dashboard

In last weeks blog, Systemic Risk Reports for G-SIBs, I used the ActrixFT Dashboard to show risk indicators that are used in the determination of capital surcharges for the Method 1 (Basel methodology) , both for Dec 23 and new ones from Dec 24 that will be used in future.

Since that blog I have updated the Dashboard with new functionality to calculate the capital surcharges for Method 2 (Federal Reserve methodology), as below:

• Showing the Capital Surcharge tiers for 2025, which were determined in 4Q 2024, based on input risk indicator data as of 31-Dec-23.
• JPMorgan Chase the highest with a 4.5% capital surcharge.
• Citigroup and Goldman Sachs, each with 3.5%
• Bank of America and Morgan Stanley, each with 3%
• Wells Fargo and Bank of New York Mellon with 1.5%
• State Street Corporation with 1%

G-SIB Scores

These capital surcharges are determined from G-SIB Scores, which

• below 130 result in 0% surcharge,
• between 130 and 229 result in 1%,
• between 230 and 329 result in 1.5%,
• and so on in 0.5% increments up to a score of 1129,
• after which the charge is 6.5% plus an additional 0.5% for each 100 above 1130.

The G-SIB Scores are calculated from component financial risk indicator data.

As the ActrixFT Dashboard has access to risk indicator data for each of above banks for both 31-Dec-23 and 31-Dec-24, we can calculate the Method 2 G-SIB Scores.

• Showing that JPMorgan Chase score increases from 915 to 985.
• The yellow highlight tells us that the new score is in a higher surcharge tier, now 5% instead of 4.5%
• Bank of America’s score also moves it to the next tier, 3.5% from 3%
• The remaining increases or decreases are within the same tier

And updating the earlier horizontal bar chart:

• Showing the Capital Surcharge tiers for 2026, which will be determined in November 2025, based on input risk indicator data as of 31-Dec-24.
• JP Morgan Chase, now 5% (up from 4.5%)
• Bank of America now 3.5% (up from 3%) and joining Goldman Sachs and Citigroup in that capital tier
• No change in tier for the others

Implications

While there be some kudos in being higher in the G-SIB rankings, signifying a more systemically important global financial institution, in fact these capital surcharges act to raise the minimum regulatory capital requirements for a bank.

As an example, from JPMorgan Chase’s recent regulatory filings, it’s common equity tier 1 (CET1) capital ratio to avoid limitations on capital distributions and discretionary bonus payments is 11.5%, of which 4.5% is from the G-SIB surcharge, 2.5% from a capital conservation buffer and 4.5% is the Basel III regulatory minimum.

This 11.5%, will be going up to 12% in 2026, subject of-course to the official determination by U.S. regulators.

JPMorgan Chase’s actual CET1 ratio of 15.15% (as of June, 30 2025), is significantly higher than it’s regulatory minimum of 11.5%, meaning that the G-SIB increase of 0.5% is not a binding constrain, but it is a floor.

Efficient capital allocation and the appropriate amount of capital are important considerations for shareholders and management. At least since the Great Financial Crisis of 2007-08, banks have increased their CET1 capital ratios to well above the regulatory minimums, resulting in lower return on capital metrics and possibly limiting intermediation and other growth opportunities.

There may come a time when banks and their shareholders accept that capital ratios should be lower and closer to regulatory minimums, making the G-SIB capital surcharge a constraint.

Regulators may also arrive at a similar conclusion and change the calibration of the surcharges, to decrease regulatory minimums.

Other Large US BHCs

Another interesting analysis is to consider if any other U.S. Large Bank Holding Companies (BHCs) are close to becoming G-SIBs in 2026.

Let’s look for these in the ActrixFT Dashboard, remembering that the magic number is 130 or higher.

• Showing that both Charles Schwab and Northern Trust have scores above 130 for both dates, yet we know they are not G-SIBs.
• Before we address these, lets look at the others in the table.
• U.S. Bancorp at 120 and 116 is just below the 130 threshold
• PNC Financial at 96 is now up to 108, but still well below 130
• Should these two firms grow significantly in the next few years, it is possible that they could hit the 130 score level.
• The rest are all below 100, most below 65.

So what of Charles Schwab and Northern Trust?

Well they are both exempt due to the nature of their businesses and the specifics of the methodology. Drilling down into Charles Schwab and Northern Trust Scores:

In both cases the only reason that their Scores are above 130 is due to the Short-term wholesale funding metric. All the other risk metrics contributions to the score are relatively low.

Recall that this short-term wholesale funding metric is not used in Method 1 (Basel Methodology), which uses Substitutability metrics.

In-fact under Method 1, Charles Schwab’s score would be 58 and Northern Trust’s score 63, both under half the 130 threshold..

The business models of the these two BHCs are much narrower than the existing U.S. G-Sibs, Charles Schwab is primarily a brokerage and Northern Trust is primarily a custody bank, both low risk client servicing businesses.

For these and no-doubt other considerations, U.S. regulators have exempted these two institutions from G-SIB designation.

Building

Before I end the blog, a few thoughts on what it took to add this new functionality to the ActrixFT Dashboard:

• Firstly reading Chris’s blog on the methodology, see here.
• Using Gemini to update the existing python code in incremental steps based on the methodology
• Iterating with Gemini to get charts and numbers I wanted
• Testing functionality and usability
• Checking scores and charges for Dec-2023 data with actual results available in the Office of Financial Research (OFR) Bank Systemic Risk Monitor
• Spot checking a Dec-2024 data calculation with ChatGPT, which independently and with some prompting used source data to calculate GSIB Scores for a firm
• Uploading input risk data for Dec-23 and Dec-24 for more BHCs.

All in all, a days work.

Which I certainly could not have done without GenAI tools.

That is not to say that an experienced python developer could not have done this in a similar amount of time, possibly they could have.

However, what is new and empowering is that with domain knowledge and a business requirement, plus familiarity with coding (from decades past), I could deliver this functionality myself.

Not only is that interesting and motivating work, it postulates a future in which many of us can build better be-spoke applications than those that exist today.

In Summary

• U.S. G-SIBs capital surcharges are determined by Method 2
• New surcharges for 2026 will be published later this year
• The dashboard now predicts what these will be
• JP Morgan Chase up from 4.5% to 5%, Bank of America 3% to 3.5%
• These capital surcharges contribute to a floor on the CET1 ratio
• Setting limits on capital distributions and discretionary bonus payments
• The dashboard also provides insights into other U.S. Banks
• Their scores and component risk indicators

If you are interested in the data, please email us.

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