Big U.S. banks' surpluses over required amounts of loss-absorbing capital and long-term debt dipped a bit in the 2021 fourth quarter, but the group maintained healthy cushions overall amid strong balance sheet growth.

The eight U.S. global systemically important banks, or G-SIBs, held $396.30 billion of loss-absorbing capacity — consisting of Tier 1 capital and long-term debt — above required levels determined by risk-weighted assets and on- and off-balance sheet exposures at the end of 2021, according to S&P Global Market Intelligence data. That is a little below the $402.21 billion surplus as of the 2021 third quarter.

Still, the fourth-quarter 2021 total loss-absorbing capacity, or TLAC, across the group was 23.0% higher than the required amount, as banks have continued to be active issuers of debt and preferred stock as lending has picked up and total assets have continued to increase.

Comfortable margins

The TLAC and long-term debt requirements were designed to establish reservoirs to absorb losses in the event of a failure of a G-SIB and to protect depositors and the Federal Deposit Insurance Corp. Regulators estimated the group had a $70 billion shortfall when the rules were made final in 2016.

As of the 2021 fourth quarter, the G-SIBs had TLAC surpluses ranging from 7.0% of the required amount at JPMorgan Chase & Co. to 68.0% at Morgan Stanley. In dollar amounts, the surpluses ranged from $7.22 billion at State Street Corp. to $116.27 billion at The Goldman Sachs Group Inc. JPMorgan Chase had the largest TLAC, including its surplus, at $464.64 billion.

Surpluses for required long-term debt ranged from 2.3% of the required amount at JPMorgan Chase to 117.7% at Morgan Stanley. Bank of America Corp. had the largest amount of eligible long-term debt, including its surplus, at $227.71 billion.

Binding floors

TLAC and long-term debt minimums are determined by formulas based on risk-weighted assets or total leverage exposure, whichever results in a higher amount.

Total leverage exposure, or balance sheet assets plus off-balance sheet exposures, continued to set long-term debt minimums across the G-SIB group in the 2021 fourth quarter.

Total leverage exposure also established the TLAC minimums for half the group.

Other constraints

The G-SIBs have maintained their surpluses even as they have resumed share buybacks after an end to pandemic-related restrictions imposed by regulators.

But several of the G-SIBs appear headed toward higher regulatory capital surcharges and face continuing pressure on supplementary leverage ratios after explosive growth in balance sheets since the beginning of 2020.

Analysts anticipate that stock repurchases will slow down again as banks prioritize loan growth.