Citigroup Inc. said a slew of new capital requirements that regulators will propose this week could hinder the bank’s ability to trade certain products like exotic derivatives or offer prime brokerage services.
The bank is awaiting more clarity from the Federal Reserve’s much-anticipated unveiling of the so-called Basel III endgame requirements, Paco Ybarra, who leads the firm’s institutional clients group, said in an interview with Bloomberg Television. Those rules are expected to increase the amount of capital that the biggest US banks must hold and are seen as especially punitive toward firms with large trading divisions like Citigroup.
“There will be things that move from banks to non-banks, risks that move from banks to non-banks. And the system will find a new balance with banks still playing a significant role,” Ybarra said. “Most likely there will be a significant business for us to do still after the rules happen.”
The Fed has said it will host a meeting on Thursday to discuss the proposed changes, which are part of a sweeping review of banks’ capital requirements by Michael Barr, the central bank’s vice chairman for supervision. The Fed is also reviewing changes to the surcharge on capital that global, systemically-important banks face.
In addition to derivatives and prime services, the proposals could impact Citigroup’s financing businesses, Ybarra said.
Ybarra, whose division also includes the firm’s investment bankers, said there could be more pressure on headcount within that business as the industry navigates a prolonged slowdown in deals and capital markets activity. Already, Ybarra said, it’s the longest slump in investment-banking revenue the industry has ever seen.
“The need is there,” Ybarra said. “The need is accumulating through months of inactivity. So, at some point, even if the market is not great, the fact that needs have accumulated will take over and will start generating revenue.”
