WASHINGTON, March 27 (Reuters) - A top U.S. regulator gave aspirited defense on Thursday of new rules forcing foreign banksto hold more capital in their U.S. units, after overseas firmsand regulators criticized the requirements.
Federal Reserve Governor Daniel Tarullo said the rules arenecessary to protect the U.S. financial system from anothermeltdown like the 2007-2009 crisis.
"Of course, a few foreign banks would prefer the old systemunder which they held relatively little capital in their veryextensive U.S. operations," Tarullo said in a speech at aHarvard Law School event in Armonk, New York.
"But that was neither safe for the financial system norparticularly fair to their competitors - U.S. and foreign - thathold significant amounts of capital here."
Tarullo said foreign regulators also have applied capitaland liquidity requirements to subsidiaries of U.S. banks intheir countries that differed from rules enforced by U.S.officials.
Before the financial crisis, U.S. regulators traditionallycounted on foreign supervisors to watch overseas banks operatinghere. But after hundreds of foreign banks needed emergency loansfrom the Fed during the meltdown, regulators changed tactics.
The Fed's new rules require foreign banks with sizeable U.S.operations, such as Deutsche Bank and Barclays, to group their U.S. units under a single entity andmeet tougher requirements on their debt loads and the amount ofeasy-to-sell assets they need in case of a credit crunch.
Regulators have estimated that 17 foreign banks would haveto comply with the new requirements, which were finalized inFebruary.
Foreign banks argued that the rules would deviate fromglobally harmonized regulatory regimes and make the financialsystem less stable. Some critics warned of a "Balkanization" offinancial regulation.
Tarullo said the Fed's decision allows the same rules toapply to domestic and foreign banks operating here. He said U.S.units of foreign banks needed tougher scrutiny because theyrelied on risky, short-term funding before the crisis.
"The most important contribution the United States can maketo global financial stability is to ensure the stability of ourown financial system," he said. (Reporting by Emily Stephenson; Editing by Lisa Shumaker)