September 22, 2019

E.U. Objects to U.S. Regulations on Capital Requirements

BRUSSELS — The European Union’s top financial regulator has objected to U.S. proposals about capital requirements for branches of foreign banks, saying they would be costly, unfair and potentially damaging to the global economy.

The protest, made last week and circulated on Monday by E.U. officials, comes as large swathes of the banking sector in Europe emerge from a long period of state support after a financial crisis that included the collapse of several banks.

The requirement, meant to ensure banks have adequate capital, could put European lenders at a “competitive disadvantage” to their U.S. counterparts, Michel Barnier, the European commissioner for the internal market, warned Ben S. Bernanke, the chairman of the Federal Reserve, in a letter on April 18.

The proposed requirements for so-called foreign banking organizations also “could spark a protectionist reaction from other jurisdictions, which could ultimately have a substantial negative impact on the global economic recovery,” Mr. Barnier wrote.

In addition, European bankers have warned that the proposals could become an obstacle in talks over a Transatlantic Trade and Investment Partnership between the United States and the European Union, which was proposed in February by President Barack Obama.

The rules mark a significant change because U.S. authorities have long allowed the capital requirements on branches of foreign banks to be mainly supervised by their home countries. Pressure grew to overhaul that policy after the Fed was forced to give emergency loans to foreign banks caught up in the financial crisis.

The Fed’s Board of Governors issued the proposal on foreign banks for public comment in December as part of efforts to implement enhanced capital requirements in the Dodd-Frank Act, which beefed up financial oversight in the United States.

One of the main concerns in Europe was a requirement that called for foreign banks to maintain separate liquidity buffers for their U.S. branches, while many American banks would be subject to a single liquidity requirement for their global operations.

The Fed was “completely disregarding” whether foreign banks were already governed by standards that were already as robust as U.S. standards in their home countries, Mr. Barnier wrote.

Mr. Barnier’s protest has strong support from industry groups like the European Banking Federation, which explained its “serious concerns” about the measure in a six-page letter from the federation’s chief executive, Guido Ravoet, to the secretary of the Fed’s Board of Governors, Robert deV. Frierson, on April 18.

The rules would mean U.S. lenders operate under rules “not comparable to how U.S.-headquartered banking organizations are regulated,” warned Mr. Ravoet, whose federation is made up of national associations that count major lenders like Deutsche Bank of Germany and Barclays of Britain among their members.

Some foreign banks could choose to close down their American operations and so “U.S. financial markets and the broader U.S. economy would suffer, especially at a time when the U.S. economic recovery remains fragile, and global economic conditions remain uncertain,” he wrote.

The rules also “could pose another obstacle to the successful conclusion of the T.T.I.P. negotiations, which are expected to be complex and ambitious,” wrote Mr. Ravoet, using the acronym for the proposed transatlantic trade pact.

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