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* G20 set to stop short of mandatory commodities position limits* G20 discuss strengthening FSBBy Francesca Landini and Huw JonesPARIS/LONDON, Oct 15 (Reuters) - Finance ministers and central bankers from the world’s top economies are set to back a mandatory capital surcharge on big lenders of up to 2.5 percent to be phased in from 2016.A draft communique from a meeting of G20 finance chiefs endorses a 1-2.5 percent capital surcharge on top banks like Goldman Sachs , HSBC , Deutsche Bank and JPMorgan Chase .The aim is to make sure they have enough capital to withstand market turbulence so that taxpayers won’t have to rescue banks again in the next crisis.A summit of the G20 leaders in Cannes, France in early November is set to give final approval to the surcharge plan and name the banks affected, known as global systemically important financial institution or G-SIFIs, G20 sources said.”Now that the framework applicable to G-SIFIs is agreed, we urge the Financial Stability Board to define the modalities to extend expeditiously the framework to all SIFIs,” the draft communique obtained by Reuters said.Insurers are battling against a surcharge as second tier banks.The charge — which will be in addition to a 7 percent minimum core capital buffer being phased in for all banks from 2013 — is part of a wider package the G20 ministers are set to endorse on Saturday.The other elements include common “tools” for supervisors to wind up ailing banks, compulsory “living wills” or resolution plans for every big bank, and more intensive supervision for large lenders, the communique said.The FSB, which formulates and coordinates financial regulation on behalf of the G20, has already drawn up criteria to determine which banks face a surcharge.It has said 28 banks would be affected if the regime was introduced immediately but G20 sources said the Cannes summit may name up to 50 lenders.POSITION LIMITSThe FSB is also expected to update ministers on its work to define the so-called shadow banking sector before thrashing out recommendations next year to regulate it.Supervisors fear that as banks face tougher rules, risky activities could migrate to other parts of the financial system such as money market funds and special vehicles.G20 presidency France appears to have lost its battle to introduce tough curbs on what it sees as speculation in food and energy commodity markets by imposing limits on the size of positions a trader can hold at any given time.G20 sources said the group was expected to approve a report from the International Organisation of Securities Commissions, which groups national market watchdogs, on the benefit of imposing trading limits but it would remain “optional”.The U.S. Commodity Futures Trading Commission is set to discuss fixed limits on Tuesday but in Europe there is no consensus, with Britain opposed to such permanent curbs.STRONGER FSBBank of Italy Governor Mario Draghi is expected to propose strengthening the FSB, which he chairs, in order to ensure proper implementation of a welter of new rules the G20 has pledged to introduce, including the bank capital surcharge.Draghi, who steps down as chairman this month to become president of the European Central Bank, is expected to propose more members from emerging markets and developing countries on the FSB’s agenda-setting steering committee.Some Asian and Latin American countries feel the regulatory measures now being finalised plug supervisory holes in European and U.S markets and want their circumstances to shape future G20 regulatory work.Draghi also wants representatives of finance ministries on the steering committee to add political clout.”Draghi will also discuss the possibility to give FSB a legal personality and to allow it to receive resources from more diversified sources,” a G20 source said.Saturday’s meeting will also touch on who will replace Draghi. Bank of Canada Governor Mark Carney is seen by some G20 officials as the main contender so far that the Cannes summit will endorse.G20 ministers are also expected to look at proposals to reinforce non-binding draft principles on financial consumer protection authored by the OECD which have been criticised for being too weak.

The revision of the SRFs reflects Fitch’s view that support dynamics are changing in the UK. The banking system is not only large relative to the UK economy, but there is also more advanced political will to reduce the implicit support for the country’s banks, building on The Banking Act 2009 and, more recently the various policy recommendations of the Independent Commission on Banking (ICB). Although Fitch has affirmed the ‘1’ Support Ratings of the largest UK banks, indicating that support for these banks is likely to remain high until elements of the UK banking sector complete their rehabilitation and some of the more practical aspects of bank resolution can be implemented, the lower SRF indicates that the potential for the provision of extraordinary support for senior bank creditors is relatively less certain than before. Most smaller UK banks and building societies already have the lowest Support Ratings of ‘5’, reflecting Fitch’s opinion that support for senior creditors cannot be relied upon.The downgrades of LBG and RBSG reflect the revision of their SRF as their current VRs are below that (both at ‘bbb’). Both of these banking groups have shown steady improvement in their risk profiles and prospects over the past two years and, assuming there is no major fallout from the euro zone crisis, for example, ought to be able to achieve higher VRs over the medium- and long-term. Fitch preserved a one notch difference between RBSG’s Long-term IDR and its major subsidiaries in the US and Ireland but equalised the short-term IDRs of these entities with that of the group to reflect its expectation that the support will remain stronger in the short-term.Barclays IDRs and VRs reflect the group’s strong UK franchise, broad business mix, robust profitability, solid liquidity and sophisticated risk management. They also consider the earnings and risk volatility in its investment banking division, Barclays Capital (BarCap). The RWN on Barclays IDRs and VRs reflects Fitch’s view that global trading and universal banks have business models that are particularly sensitive to market sentiment and confidence, that are complex and exposed to greater volatility. They will be resolved in a reasonably short timeframe.With the exception of Barclays, where Fitch’s rating actions are taken in light of the agency’s full criteria, all other rating actions have considered only the parts of the criteria that deal with support.In Fitch’s rating framework, a bank’s intrinsic creditworthiness is reflected in its Viability Rating, while the potential for extraordinary sovereign support is reflected in its Support Rating Floor. Its IDR is the higher of the two.For additional perspective see the report ‘Rating Banks in a Changing World’ which will shortly be available on www.fitchratings.com.