Treasury opposes Senate bank capital proposal: official

WASHINGTON (Reuters) - The Treasury Department is opposed to a provision in the Senate bill that would force the largest banks to set aside billions of dollars in extra capital, a Treasury official said on Wednesday.

The Treasury supports higher capital standards for banks but disagreed with the Senate bill's method for calculating the extra capital, the official said, calling it "unworkable".

The provision in the bill was sponsored by Republican Senator Susan Collins and aims to make sure that highly leveraged financial giants do not again threaten the stability of the system as a whole, as they did during the 2008-2009 financial crisis.

The Federal Reserve also opposes the Collins measure, another source familiar with the matter said.

The Fed and Treasury are concerned that as drafted, the proposed capital rules tie regulators' hands in determining capital levels by requiring complicated calculations and it confuses capital requirements for banks and bank holding companies.

Banks have voiced concern that the provision could unnecessarily require them to hold excessive amounts of capital, reducing their capacity to lend and reducing their competitiveness with foreign institutions that do not face such stringent rules.

But the Treasury was quick to point out that it still wants larger firms with riskier activities to have a larger capital cushion.

"This administration has been fighting for higher capital standards for over a year," Treasury Assistant Secretary for Financial Institutions Michael Barr said in a statement. "We are for higher capital standards."

The language in the Senate bill also excludes trust-preferred securities from the definition of capital.

Those securities "are a proven source of capital and excluding them would cause unnecessary turmoil on bank balance sheets," said Scott Talbott, senior vice president with the Financial Services Roundtable, which represents the largest financial services firms.

The Senate was voting on Wednesday to limit debate on the financial reform bill, which would provide the most sweeping changes to the U.S. financial sector regulatory landscape since the Great Depression.

(Reporting by David Lawder, Rachelle Younglai, Kristina Cooke; Editing by Kenneth Barry)