15 February 2013

Bloomberg: Barnier says US risks conflict on derivative rules

Michel Barnier, the European Union's financial services chief, pressed the US to hew to international rules for bank stability and derivatives, warning "home-grown" regulations can lead to costs and conflicts.

The Federal Reserve proposed in December that foreign lenders organise their US units as subsidiaries and hold capital independently from their parent firms to make it easier for US regulators to seize local assets in a crisis.

“Large international banks pose indeed potential problems”, Barnier said. “However, I am not fully convinced by the proposed approach on foreign banking organisation”, he said, without elaborating on specific rules. Regulators must work on “a proportionate and cooperative approach".

The US and the EU are overhauling their rulebooks for banks and markets in the wake of the financial crisis that followed the collapse of Lehman Brothers Holdings Inc. While authorities on both sides of the Atlantic claim they are faithfully implementing international standards, lenders and regulators have warned that the plans don’t always align and could leave them facing competing requirements.

“Expanding interpretation of home-grown rules to transactions that are already covered by equally solid foreign rules will only lead to legal conflicts”, he said of derivatives. “It will create uncertainty, increase costs and push trade to less well regulated places. This is precisely what we want to avoid.”

Barnier also said he continues to be “disappointed by the slowness of the US in moving towards internationally agreed accounting standards".  The Basel committee has narrowed the definition of what counts as capital. It also devised a method of tallying assets for calculating leverage ratios that puts aside the different accounting standards used in the US and Europe. The new method would increase the balance sheets of US banks.

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