26 December 2013

FT: Banks to exploit delays to planned Fed capital rule changes

European and Asian banks will have more time to fight possible US additional capital rules, after the Federal Reserve pushed plans to implement final measures into 2014, according to people familiar with the matter.

The planned regulations will require overseas banks in the US to establish intermediate holding companies for their US operations. Capital held at those companies would likely be ringfenced, protecting the US in the event of a crisis.

In July, US regulators announced a proposal for tougher leverage ratios than the Basel III international standard. The more stringent ratio, which requires banks to hold more equity against their entire portfolio, is supposed to be more difficult for banks to manipulate.

Among the groups that would be hurt by such a rule, which has yet to be finalised, is Deutsche Bank, which would likely face a capital shortfall in trying to meet the new ratio, according to analysts. The German firm is reducing it balance sheet by selling assets, among other moves, to meet new capital standards.

Along with presenting their case to the Fed, the lenders also plan to lobby European and other foreign regulators to retaliate in kind, the people added. Michel Barnier, EU commissioner, suggested in October that such a move could be considered.

Now that European regulators have hammered out major details for an EU-wide rescue system for failing banks as part of its Banking Union, lenders are hoping that officials will turn their attention to the FBO rules.

Besides creating an unfair system and harming competition, foreign banks said the FBO rules will probably curb activity that helps the US economy. In a presentation to the Fed in October, Barclays said “the likely outcome will be a substantial reduction in activity in broker-dealer operations such as activity in support of the US Treasury and agency markets, relative to banking activities”.

Full article (FT subscription required)

© Financial Times