With the European Union contemplating more stringent regulatory capital rules for U.S. and non-EU headquartered systemically important financial institutions, Rep. Blaine Luetkemeyer (R-Mo.) today wrote to Federal Reserve Chairman Janet Yellen urging the Fed to reevaluate its own regulatory treatment of international banks.
The EU’s move toward higher capital requirements is due — at least in part — to the Fed’s recent enhanced prudential standards for foreign banking organizations, which require many foreign banks operating in the U.S. to establish and park capital in intermediate holding companies, Luetkemeyer noted. He added that “such requirements are disrupting the ability of internationally-active financial institutions to serve markets around the world, impede the allocation of capital, and ultimately result in market fragmentation and concentration risks.”
If left unchecked, Luetkemeyer warned that this “global regulatory retaliation” could curtail the flow of capital through global markets. He called on the Fed to engage in dialogue with international regulators to review existing and proposed requirements for banks operating overseas, and to continue working to reform both the domestic and international regulatory regimes.
“[T]he regulatory pendulum has swung too far,” he wrote. “Financial regulatory reforms that provide for greater liquidity and access to credit but simultaneously protect the domestic and global financial systems are the key to the economic renaissance that is within our grasp.”