WRAPUP 2-Global effort needed on bank capital-US officials

* Global harmonization needed on bank capital – Brainard

* Senator Bayh raises questions about EU stress tests

* More, better capital required for stability – Tarullo
(Adds Brainard, Bayh, Casey comments, background)

By Kevin Drawbaugh

WASHINGTON, July 20 (BestGrowthStock) – Global cooperation will be
crucial to hardening world banks’ capital armor along the lines
backed by Congress and the Obama administration, senior U.S.
regulators said on Tuesday.

As standard-setters in Switzerland hammer away at a new set
of worldwide bank capital standards, U.S. Treasury Department
official Lael Brainard said, “Capital rules must be harmonized
internationally to be effective domestically.”

More broadly, she told a Senate subcommittee, the tougher
financial regulations that are headed for President Barack
Obama’s desk to be enacted on Wednesday will be less effective
without global consensus on some key policies.

“In many of these areas … if we are not able to achieve
convergence, we won’t be able to protect American consumers,
businesses and workers the way that this legislation would like
to,” said Brainard, who is Treasury’s under secretary for
international affairs.

Setting a high hurdle for the rest of the world, the U.S.
Congress on Thursday approved the biggest overhaul of bank and
capital market regulation in decades.

Obama is expected to sign the far-reaching bill into law on
Wednesday, and regulators will spend the next two years
fleshing it out and implementing it.
(For details of the bill approved by the U.S. Congress, please
double-click on [ID:nN27130507])

A major part of the bill forces banks to hold more capital
to withstand crises better than they did during the 2007-2009
credit crunch and this year’s debt crises in Europe.

Bank profits are threatened by such steps, and Congress has
left the nitty-gritty details of higher standards to a
slow-moving international standard-setting process that has
already been grinding away for several months.

BASEL PANEL ON TRACK

The Basel Committee of central bankers and supervisors,
based in Switzerland, is in the process of writing new, higher
bank capital and liquidity requirements, as ordered months ago
by the Group of 20 nations. The committee is on track in
writing rules, but the implementation timetable has slipped.

The G20 said in June it will approve the new Basel package
in November, but signaled that countries will get more time to
implement changes beyond the original end-of-2012 deadline.

Momentum behind the new standards is strong and some banks
are already taking steps in anticipation of them.

Federal Reserve Governor Daniel Tarullo told the Senate
banking subcommittee at a public hearing that higher capital
standards for large financial firms are vital to making the
world financial system more stable and resilient.

“Our view is that large institutions should be sufficiently
capitalized so that they could sustain the losses associated
with a systemic problem,” said Tarullo, the Fed’s point man on
regulatory issues. “Meeting this standard will require
considerable strengthening of existing requirements.”

Many U.S. banks have already shored up their balance sheets
since the 2007-09 crisis that slammed economies globally. But
some still have a long way to go in this regard, and many EU
banks’ capital strength levels are seen as shaky.

Europe is right now running “stress tests” of how 91 banks
across 20 countries would cope with another shock like Greece’s
sovereign debt crisis. The Committee of European Banking
Supervisors (CEBS), which is overseeing the tests, said results
would be released on Friday. [ID:nLDE66I10X]
(For a comparison of U.S. and EU financial reform, please
double-click on [ID:nLDE66F0VM])

EU STRESS TESTS EYED

Brainard told the Senate panel that the tests “could help
to strengthen bank balance sheets in Europe.”

She said, “The lesson is clear: more and higher quality
capital must be at the core of our efforts to ensure a more
resilient financial system less prone to failure.”

But Democratic Senator Evan Bayh, who chaired the hearing,
expressed a widely held concern about the EU tests.

“There are some disturbing reports that maybe they won’t be
quite as transparent as we might like because of what the
results might show,” Bayh said.

The legislation headed for Obama’s desk — approved by
Congress after more than a year of debate — orders regulators
to increase capital requirements on financial firms as they get
bigger and take on riskier activities.

It also creates a government watchdog to protect financial
consumers; gives authorities a new way to dismantle troubled
firms; curbs risky trading by banks; and cracks down on the
unpoliced over-the-counter derivatives market.

In areas such as derivatives regulation, global cooperation
will be key to preventing a new wave of regulatory arbitrage in
which firms shop around for the least-strict national regime,
moving jobs and trading volumes with them, officials said.

“There’s always going to be arbitrage opportunities given
the nature of markets,” but cooperation will minimize that,
said Securities and Exchange Commission member Kathleen Casey.
Stock Research

(Additional reporting by Glenn Somerville and Pedro Nicolaci
da Costa in Washington, Huw Jones in London; Editing by Eric
Walsh)

WRAPUP 2-Global effort needed on bank capital-US officials