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Industry groups say they have put the push for reduced capital requirements at the banks’ US holding companies at the top of their agenda for the remainder of the year, after signals the Federal Reserve is open to relaxing the rules.
At issue is the topic of “ringfencing”, or the requirement that non-US banks operating in America set up standalone subsidiaries with dedicated capital and liquidity inside them.
The idea is that such structures would make a troubled bank easier to wind down without burdening the taxpayer, while preventing contagion spilling over into the rest of the financial system. Since the Federal Reserve sketched out rules four years ago the European Union has proposed similar regulations, in what critics said was a tit-for-tat response.
The likes of Credit Suisse, Deutsche Bank, UBS and Barclays complain that the Fed, the most powerful of the US bank regulators, has set the capital requirements too high. One New York-based executive at a European bank calculates that his US holding company is operating with about one-quarter more capital, as a proportion of risk-weighted assets, than Wall Street giants such as JPMorgan Chase.
“We need to have a strong presence [in the US] but also seek regulatory consistency globally,” said Yann Gérardin, global head of corporate and institutional banking at BNP Paribas.
The push by the foreign banks is part of a broader, industry-wide effort to reconsider post-crisis constraints, which Republicans say have gone too far by choking the supply of credit to the world’s largest economy.
Lobbyists for the foreign banks are arguing that after last month’s relaxation of laws governing some of the smallest banks in the country, it is high time to loosen conditions for some of the biggest. The Institute of International Bankers has argued publicly for a level playing field, noting that foreign banks provide about one-third of all business loans in the US and hold about one-fifth of all banking assets across the system.
Full article on Financial Times (subscription required)