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* Germany's BdB says will put Europe banks at disadvantage
* UK's BBA says proposals too onerous, risks fragmentation
FRANKFURT, April 29 (Reuters) - German and British bankinglobby groups on Monday slammed plans by U.S. regulators totoughen rules on foreign banks, saying they risk fragmentingbanking supervision and causing major disruption to U.S. bankoperations.
Germany's banking association, BdB, said the push by U.S.regulators to tighten oversight of foreign banks would putEuropean banks at a competitive disadvantage internationally.
The British Bankers' Association (BBA) said imposinglocalised capital and liquidity requirements on foreign banks"will cause significant disruption to many foreign bankscreating onerous and complex operational issues."
In December, Federal Reserve Board Governor Daniel Tarullosaid foreign banks should be required to hold as much capital astheir U.S. counterparts, regardless of how their overseas parentcompanies are funded - a move that could trigger competitionamong regulators requiring banks to hold different levels ofcapital.
"If other countries followed the U.S. example, it wouldresult in a dangerous fragmentation of financial markets.Different rules and standards would make markets more unstableand inefficient," BdB managing director Michael Kemmer said in astatement.
"These new rules amount to a clear disadvantage when itcomes to competing with U.S. banks on a global level."
The United States has traditionally relied on foreignsupervisors to regulate overseas banks and specify appropriatelevels of capital, just as U.S. banks operating in the euro zoneare judged on their worldwide capital.
The Fed's measure could be particularly costly for DeutscheBank, Germany's flagship lender, and to a lesserdegree for Britain's Barclays Plc, because of theircorporate structure.
Foreign banks would have to meet minimum capital andleverage ratios greater than those required under new Basel IIIglobal rules, the BBA said in its response to the proposals.
"The proposals may lead to the further fragmentation ofbanking supervision," said Thomas Liew, a policy advisor for theBBA. That could "encourage regulators in other jurisdictions toseek their own proposals," he said.
European Union Internal Market Commissioner Michel Barnier,the EU's top financial regulator, has said the U.S. plan couldlead to retaliation from other regulators.
As a governor on the Fed Board in Washington, Tarullo is apoint person for financial regulation, but also votes at everypolicy-setting meeting of the U.S. central bank.
