Markets
Fed Move Rattles Global Bank Talks
By Ryan Tracy
Feb. 20, 2014 9:46 p.m. ET
The Federal Reserve's move to impose tough capital rules on foreign banks in the U.S. could complicate global coordination on another postcrisis priority: international agreement on a plan that eliminates the chance any bank is too big to fail.
The central bank's decision, which came after months of pushback from overseas policy makers, inflamed other financial-system overseers who saw it as an intentional break from international coordination on postcrisis financial rules. That includes ongoing talks on a plan for dismantling a global financial firm without using government money in a future financial crisis.
In response to the Fed's vote on Tuesday, a spokeswoman for Michel Barnier, European commissioner for the internal market, said the new rule "conflicts with the international standards on cross-border cooperation in bank resolution," referring to the standards for handling a large firm's failure. "This has been decided unilaterally," she said.
U.S. regulators said the Fed's move was consistent with efforts to make the global financial system more stable. But some market observers are concerned it could hamper the global effort to prevent the next Lehman Brothers from rippling across the global financial system as it did in 2008.
"One of the lessons from 2008 was that we needed more international cooperation, not less," said Michael Krimminger, a partner at Cleary Gottlieb Steen & Hamilton LLP and former general counsel of the Federal Deposit Insurance Corp. "I fear that by putting up these capital and other standards country by country, we create the incentives for less cooperation, not more."
The stakes of the talks are high. In the U.S., Congress has essentially outlawed government bailouts, making a credible alternative crucial to ensure a large firm could fail without causing economic chaos. Big banks, for their part, fear the lack of a strong international plan for avoiding a bailout would give momentum to a more radical agenda: legislation or regulation that would force them to break up, shrink or carry even larger amounts of capital that would raise their cost of doing business.
Senior U.S. regulators said the Fed rule, which would require large foreign banks to set up a single holding company over their U.S. operations, would actually make planning for that firms' demise easier by simplifying the banks' structure and providing regulators with a clearer view of its capital levels.
"You know where things stand," said Thomas Hoenig, vice chairman of the FDIC, which is leading the U.S. effort to develop a plan for handling a big bank failure. "Therefore, you are in a better position to have a cooperative discussion."
Elizabeth MacDonald, senior supervisory financial analyst in the Fed's division of banking supervision, said at the Fed's meeting on Tuesday that the rule "is intended to enhance the supervision and regulation of these entities," so that their failure would be less likely in the first place. If a firm does get in trouble, Fed officials said, the new capital rules will help ensure that foreign firms don't turn to the U.S. for emergency loans to stay afloat, as occurred in 2008.
Under the 2010 Dodd-Frank financial overhaul, the preferred U.S. method for handling a failing financial firm is bankruptcy. But many observers say that course looks dicey for the largest firms because bankruptcy courts don't move quickly enough to deal with the immediate needs of a faltering giant bank.
If a bankruptcy isn't feasible, the law says the FDIC has authority to take over and liquidate a failing firm, but regulators are still debating how best to go about such a liquidation. The FDIC has outlined a plan called "Single Point of Entry," in which agency would seize the firm's global holding company and wipe out its investors—keeping the firm's subsidiaries open and imposing losses on owners and creditors at the top rather than the banks' depositors and business partners.
Confidence in the FDIC's plan is crucial: If a bank's depositors and counterparties grow concerned about a firm's viability, they might demand to withdraw their money en masse if they are unsure the FDIC has a credible plan to ensure an orderly dismantling.
For an FDIC seizure to be truly credible, some observers say, Germany, Switzerland, the U.K., and other countries hosting big global banks also would have to agree on at least the broad outlines of how they will cooperate during a crisis. U.S. Treasury Secretary Jack Lew, who is set to arrive in Australia Friday to meet with finance ministers of major economies, said earlier this month advancing toward consensus is one of the largest remaining pieces of unfinished postcrisis business.
Copyright 2013 Dow Jones & Company, Inc. All Rights Reserved
In response to the Fed's vote on Tuesday, a spokeswoman for Michel Barnier, European commissioner for the internal market, said the new rule "conflicts with the international standards on cross-border cooperation in bank resolution," referring to the standards for handling a large firm's failure. "This has been decided unilaterally," she said.
U.S. regulators said the Fed's move was consistent with efforts to make the global financial system more stable. But some market observers are concerned it could hamper the global effort to prevent the next Lehman Brothers from rippling across the global financial system as it did in 2008.
"One of the lessons from 2008 was that we needed more international cooperation, not less," said Michael Krimminger, a partner at Cleary Gottlieb Steen & Hamilton LLP and former general counsel of the Federal Deposit Insurance Corp. "I fear that by putting up these capital and other standards country by country, we create the incentives for less cooperation, not more."
The stakes of the talks are high. In the U.S., Congress has essentially outlawed government bailouts, making a credible alternative crucial to ensure a large firm could fail without causing economic chaos. Big banks, for their part, fear the lack of a strong international plan for avoiding a bailout would give momentum to a more radical agenda: legislation or regulation that would force them to break up, shrink or carry even larger amounts of capital that would raise their cost of doing business.
Senior U.S. regulators said the Fed rule, which would require large foreign banks to set up a single holding company over their U.S. operations, would actually make planning for that firms' demise easier by simplifying the banks' structure and providing regulators with a clearer view of its capital levels.
"You know where things stand," said Thomas Hoenig, vice chairman of the FDIC, which is leading the U.S. effort to develop a plan for handling a big bank failure. "Therefore, you are in a better position to have a cooperative discussion."
Elizabeth MacDonald, senior supervisory financial analyst in the Fed's division of banking supervision, said at the Fed's meeting on Tuesday that the rule "is intended to enhance the supervision and regulation of these entities," so that their failure would be less likely in the first place. If a firm does get in trouble, Fed officials said, the new capital rules will help ensure that foreign firms don't turn to the U.S. for emergency loans to stay afloat, as occurred in 2008.
Under the 2010 Dodd-Frank financial overhaul, the preferred U.S. method for handling a failing financial firm is bankruptcy. But many observers say that course looks dicey for the largest firms because bankruptcy courts don't move quickly enough to deal with the immediate needs of a faltering giant bank.
If a bankruptcy isn't feasible, the law says the FDIC has authority to take over and liquidate a failing firm, but regulators are still debating how best to go about such a liquidation. The FDIC has outlined a plan called "Single Point of Entry," in which agency would seize the firm's global holding company and wipe out its investors—keeping the firm's subsidiaries open and imposing losses on owners and creditors at the top rather than the banks' depositors and business partners.
Confidence in the FDIC's plan is crucial: If a bank's depositors and counterparties grow concerned about a firm's viability, they might demand to withdraw their money en masse if they are unsure the FDIC has a credible plan to ensure an orderly dismantling.
For an FDIC seizure to be truly credible, some observers say, Germany, Switzerland, the U.K., and other countries hosting big global banks also would have to agree on at least the broad outlines of how they will cooperate during a crisis. U.S. Treasury Secretary Jack Lew, who is set to arrive in Australia Friday to meet with finance ministers of major economies, said earlier this month advancing toward consensus is one of the largest remaining pieces of unfinished postcrisis business.
0 comments:
Publicar un comentario