By Brooke Masters in London

About 30 global banks are bracing for tougher capital requirements as regulators meet this week to begin ranking the groups by the risk they pose to the broader financial system.

Essentially, the regulators are trying to weigh five interlocking factors: size, interconnectedness, complexity, global footprint and whether a bank has competitors that could pick up its business if it collapsed.

The resulting league table will then be used to determine how much extra capital each bank will have to hold to protect itself from unexpected losses. More capital could mean lower profits and lower returns on equity. A preliminary list of eight banks believed to be in the top – or most risky – category shows how complicated the sorting process can be.

JPMorgan would be in the top tier with a proposed capital surcharge of 2.5 per cent of assets adjusted for risk, but Goldman Sachs and Morgan Stanley would be one level down at 2 per cent. Deutsche Bank and Barclays would also be at the top, but Santander would fall in the third category and only face a 1.5 per cent surcharge.

The charges for ?global systemically significant financial institutions? (G-Sifi) come on top of the Basel III rules that require all banks to maintain a core tier one capital ratio of 7 per cent.

The surcharges seek to add a layer of protection to those banks that are so central to the world economy that they would have to be rescued.

There are also plans for an ?empty bucket? above the highest category, with a surcharge of at least 3 or 3.5 per cent, as a threat to the biggest banks, people familiar with the discussions said.

While size is easy to measure, factors such as ?substitutability? reflect regulatory judgment, and could be influenced by lobbying. The relative weights of each factor are unknown, and the rankings could change in the coming weeks.

New research by Morgan Stanley predicts that Soci?t? G?n?rale and Cr?dit Agricole will be in the second tier with a 2 per cent charge but French regulators have been trying to move them down to protect them from higher surcharges.

Size is crucial. Bank of America, HSBC, JPMorgan, BNP Paribas and Citigroup are five of the six largest banks by assets in 2010 as measured under US accounting rules, according to Morgan Stanley. All are targeted for the top category.

A bank?s centrality to the broader financial system – including its reliance on cross-border funding – and its global reach also matter. Four Chinese banks are among the world?s largest 15 but they are likely to be excluded from the G-Sifi list entirely because their business is domestic.

Groups with large investment banking divisions face relatively higher surcharges than their mostly retail and commercial counterparts because they sell complex products and have cross- border structures that would be hard to break up in a crisis.

By contrast, Santander benefits from an organisational structure that would make it relatively easy to divide along national lines and gives it local funding in many of the places that it operates.

Proposed top tier member Royal Bank of Scotland is not only very large and involved with risky products but is also central to small business lending in the UK.

Goldman, conversely, may have fallen into the second tier because it is not as dominant as it once was. Before the financial crisis, the US bank was the sole prime broker for swaths of hedge funds. Now many investment managers make a point of having two prime brokers, just in case.

The effect of the surcharge on the banks remains somewhat hard to measure. Some institutions will struggle to raise enough capital to meet the additional requirements and may experience a drag on profits.

?Many of the top 25 banks could approach likely G-Sifi standards in the next three to four years, but at the cost of dividends, returns or, critically, through more aggressive? shrinking of their balance sheets, wrote Huw van Steenis, Morgan Stanley analyst.

But Simon Gleeson, partner at Clifford Chance, predicted that Sifi banks would benefit because investors would see them as a safer investment. ?The smallest Sifi will have a big advantage over the biggest non-Sifi because the government backing they have will be clear,? he said.

? The Financial Times Limited 2011