By Douwe Miedema
WASHINGTON, April 22 (Reuters) - A U.S. plan to forceforeign banks to hold far more capital could sow discord amongsupervisors and lead to retaliation from abroad, European Unionfinancial services czar Michel Barnier said on Monday.
It was the second time in less than a week that EUmisgivings about Washington's aggressive stance in applyingdomestic rules on foreign banks became public.
"The (rule) would seem to represent a radical departure fromthe existing U.S. policy on consolidated supervision of (foreignbanks)," Barnier said in a letter to Federal Reserve ChairmanBen Bernanke, dated April 18.
"(It) may frustrate the efforts to ensure a consistentimplementation of the Basel III standards across jurisdictions,"Barnier also said, referring to a global accord on the maximumamount of money banks can borrow.
Politicians across the world cracked down on risky bankpractices in 2009 after the financial crisis, but many of therules are still not complete years later, and countries arehaggling about a rising number of issues.
Asked about Barnier's letter, the Fed defended the plan itlaunched in December, which would force foreign banks to hold asmuch capital as their U.S. counterparts regardless of how theiroverseas parent companies are funded.
The U.S. operations of overseas banks had become more riskyin recent years as they relied more on potentially unstableshort-term funding and on capital market activities, Fedspokeswoman Barbara Hagenbaugh said.
And the UK had equally required foreign bank subsidiaries tomeet local capital and liquidity requirements.
"The Federal Reserve will consider carefully the commentsreceived on its proposals before issuing regulations in finalform," Hagenbaugh said.
The Fed's measure could be particularly costly for DeutscheBank, Germany's flagship lender, and to a lesserdegree for the UK's Barclays, because of the corporatestructure of these two European banks.
The plan, authored by Fed Governor Daniel Tarullo, would bea breach with a U.S. tradition of relying on foreign supervisorsto watch overseas banks and allowing them to hold less equity inAmerica than their domestic counterparts.
In a separate April 18 letter, Barnier and a host of otherinternational regulators have also complained about U.S. rulesfor derivatives regulation to U.S. Treasury Secretary Jack Lew.
The U.S. derivatives regulator wants foreign banks to stickto the same rules for trading swaps as U.S. firms, but othercountries are urging it to rely more on the rules abroad, withinternational negotiations ongoing.
The pressure from Barnier came ahead of a meeting of the G20most powerful economies of the world this weekend, which touchedon certain financial regulation issues, such as the reform offinancial benchmarks.
The EU and the United States want to include the financialservices sector in a free trade agreement they are hammeringout, but this would take several years to complete, and anyissues now need to be resolved separately.
Barclays (BARC)
