Barnier Says U.S. Risks Conflict on Derivative Rules

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Michel Barnier, the European Union’s financial services chief, pressed the U.S. to hew to international rules for bank stability and derivatives, warning “home-grown” regulations can lead to costs and conflicts.

The Federal Reserve proposed in December that foreign lenders organize their U.S. units as subsidiaries and hold capital independently from their parent firms to make it easier for U.S. regulators to seize local assets in a crisis.

“Large international banks pose indeed potential problems,” Barnier said in remarks today at a luncheon in New York. “However, I am not fully convinced by the proposed approach on foreign banking organization,” he said, without elaborating on specific rules. Regulators must work on “a proportionate and cooperative approach,” he said.

The U.S. and the EU are overhauling their rulebooks for banks and markets in the wake of the financial crisis that followed the collapse of Lehman Brothers Holdings Inc. While authorities on both sides of the Atlantic claim they are faithfully implementing international standards, lenders and regulators have warned that the plans don’t always align and could leave them facing competing requirements.

Barnier last year joined the finance ministers of the U.K., Japan and France in calling on the U.S. to revise its draft rules for over-the-counter derivatives, saying they would lead to clashing requirements and unnecessary costs.

Legal Conflicts

“Expanding interpretation of home-grown rules to transactions that are already covered by equally solid foreign rules will only lead to legal conflicts,” he said of derivatives rules in today’s remarks. “It will create uncertainty, increase costs and push trade to less well regulated places. This is precisely what we want to avoid.”

Barnier also said he continues to be “disappointed by the slowness of the U.S. in moving towards internationally agreed accounting standards.”

The Basel committee has narrowed the definition of what counts as capital. It also devised a method of tallying assets for calculating leverage ratios that puts aside the different accounting standards used in the U.S. and Europe. The new method would increase the balance sheets of U.S. banks.

“I know this requires time,” he said. “And I also know that the U.S. business community is still to be convinced.”

The euro area will add proposals in coming months for a single banking supervisor system for the euro area, which would handle bank failures in the 17-nation euro area, Barnier said.

“In some ways, this new system will be similar to, and perhaps even simpler than, the U.S. system of banking supervision,” he said.