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By Laura Noonan and Douwe Miedema
LONDON/WASHINGTON, Oct 3 (Reuters) - The world's largestbanks are pushing regulators for more flexibility in the lastmajor set of rules to come out of the global financial crisis:requirements that would double the capital cushion banks areforced to hold.
Leaders of the 20 most important economies, the G20, inNovember will issue a draft rule, which many of the biggestbanks say need to be tailored to each institution.
The rules are the final set being considered by the nationsin the wake of the crisis, after raising requirements forshareholder equity and requiring banks show how they can bewound down without government money.
Banks are divided - amongst themselves and with regulators -on how the measures should be applied to each bank, with debatesover the right level of capital, whether riskier banks shouldhold more of it, and how the capital must be distributed throughthe company's units across the world.
Unusually, though, they largely agree with the point of thenew rules, raising their ability to absorb losses.
The plan, known as Total Loss-Absorbing Capacity (TLAC), is"a logical next step and a good next step," said AdrianDocherty, global head of financial institutions advisory at BNPParibas.
But he said there could be unintended consequences and thatflexibility was key.
For instance, European banks want to avoid having to set upa holding company structure to make them look more like U.Sbanks, something they say could be a costly exercise.
"The need for (holding company) structures may be fine incertain countries and for certain banks but is causing headacheselsewhere," he said.
Regulators in each country will implement the plan, whichwill double the amount of capital that would not be repaid in acrisis by earmarking some bonds for losses. Contracts for suchbonds could make clear that the money is gone when certaintriggers are hit, for instance.
The Federal Reserve, which will make U.S. rules, declined tocomment. Countries can draw up rules that are tougher than theglobal agreement, with the Fed in particular seen as one of themost hawkish regulators.
Regulators have made some concessions to banks since thebeginning of the year, one banking source said. For instance,they have agreed to allow more flexibility in how the TLACcapital is counted.
Banks may succeed in fine-tuning the plan further, but thebasic principles probably will not change, said one lawyer whoworks with banks on such regulatory issues.
"I don't think it's going to change a lot in thefundamentals," the lawyer said.
The rules will be levied on the world's 29 most systemicallyimportant banks, including Wall Street giants like JP MorganChase and Goldman Sachs, European banks such asHSBC, Credit Suisse and Santander,and Asian lenders like Mitsubishi UFJ FG.
Research from Citi shows the European banks best preparedinclude Nordea, UBS, Societe Generale andCredit Suisse, while BBVA, Santander, StandardChartered and HSBC lagged.
U.S. banks are reasonably well positioned, even if a handfulwould still need to do some repair work, a Reuters analysisshowed in June.
CALIBRATION CONCERNS
Several European bankers, who declined to be named, saidthat living wills - plans banks had to submit to show how theycan be wound down during a crisis without taxpayer support -should serve as the basis to draw up individual capital plans.
Gilbey Strub, at the Association for Financial Markets inEurope (AFME), an industry group, said differences in regimes towind down banks across Europe should be reflected in whatcapital buffers are imposed on banks.
Underlying the debate are different views among countriesand banks on what TLAC should do: allow a complete resurrectionof a bank that has failed, or just prop up those units of a bankthat are crucial to the stability of the entire system.
A senior executive at one of Europe's biggest banks said therules were a "very good idea" conceptually but should not beapplied so that "one-size-fits-all".
The European banker cited the case of a bank with a retailunit, which needed to be protected, and specialized divisionswhich, while needing a lot of capital, did not. The latter couldbe left out of the TLAC calculation, he said. (Reporting by Laura Noonan in London and Douwe Miedema inWashington, editing by Peter Henderson)
