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Two Senators Urge Raising Large-Bank Capital Demand

Two Senate Banking Committee lawmakers sent a letter to Federal Reserve Chairman Ben S. Bernanke urging the central bank to require the largest U.S. banks to hold more capital.

Senators David Vitter, a Republican from Louisiana, and Sherrod Brown, a Democrat from Ohio, said regulators should demand higher capital for globally systemically important institutions and that the current proposed standards are a ’’baby step in the correct direction.’’

“You must have the board revisit the proposed rule to implement Basel III and modify the rule to include a SIFI surcharge significant enough to change the incentives for the largest banks,” the senators wrote in their letter, dated yesterday. The acronym “SIFI” refers to a a systemically important financial institution whose failure could pose a threat to financial stability.

The Basel committee published measures in 2010 to more than triple the core-capital requirements of all internationally active banks. A provisional list of 29 globally systemically important financial institutions was produced last year that authorities said should face capital surcharges of as much as 2.5 percent of their risk-weighted assets because their collapse would have global ramifications.

Lenders Targeted

The lenders targeted for these surcharges and for heightened supervision included Deutsche Bank AG, BNP Paribas SA and Goldman Sachs Group Inc.

Vitter and Brown said the Basel rules should move on a sliding scale with higher standards of capital and leverage for the largest and most-complex banks. Bankers have argued that the proposed Basel capital standards are already too high and would restrict their ability to lend and grow.

“They are concerned about the impact of Basel and Dodd-Frank on smaller banks,” said Joseph Engelhard, senior vice president of Capital Alpha Partners LLC. “Unfortunately, I don’t think this proposal would solve their perceived problem and it would have significant unintended negative consequences.”

Dodd-Frank is the financial overhaul law signed by President Barack Obama in 2010.

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