Watchdogs to update Senate on global bank failure plans

WASHINGTON Wed Feb 13, 2013 7:16pm EST

WASHINGTON Feb 13 (Reuters) - U.S. and European regulators will plan out how to cope with any future failure of a global bank, a U.S. official will say at a congressional hearing to assess regulators' progress on overhauling Wall Street oversight.

A U.S. and European Commission working group will meet later this month to discuss how to wind down massive firms as part of ongoing efforts to prevent governments from having to bail out banks, Federal Deposit Insurance Corp (FDIC) Chairman Martin Gruenberg will say on Thursday.

The top U.S. financial regulators will line up for the hearing before a Senate committee to explain their 2013 agendas and update lawmakers on their efforts to crack down on Wall Street, according to prepared testimony from the regulators that was viewed by Reuters.

The 2010 Dodd-Frank oversight law charged financial regulatory agencies with writing a raft of new rules in an effort to prevent another meltdown like the 2007-2009 U.S. financial crisis.

On the agenda for Thursday's hearing are issues such as winding down massive failed banks, progress on controversial new reforms such as the Volcker rule, and requests for more funds to carry out the new authorities.

Dodd-Frank gave the FDIC, which oversees state-chartered banks, the job of planning for when a massive bank fails and cannot be resolved through bankruptcy. The FDIC is cooperating with the United Kingdom in a similar group, Gruenberg will say.

The FDIC has sketched out its plans for taking apart such a bank, but has said more work is needed to get all of the global regulators on the same page about what to do in a crisis.

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The FDIC and the Federal Reserve are considering a new requirement that the biggest banks hold a certain amount of long-term, unsecured debt, Governor Daniel Tarullo of the Federal Reserve plans to say.

That would ensure that when a bank goes into the resolution process, there would be enough long-term debt holders to bear the losses, he will say.

He also plans to tell lawmakers that bank regulators will propose a risk-based capital surcharge that would apply to the biggest banks and rules to implement new liquidity requirements that are part of a global agreement known as Basel III.

Gary Gensler, who heads the Commodity Futures Trading Commission (CFTC), the top U.S. derivatives regulator, expressed concern banks were advising hedge funds to conduct deals from off-shore locations to dodge U.S. rules.

"The CFTC is working to ensure that this idea does not prevail and develop into a practice that leaves the American public at risk," Gensler said in his prepared testimony.

He also said that the agency would call for a public hearing on Libor, the interest rate benchmark at the heart of a global rate-rigging scandal, as international regulators think about alternatives for the widely-used rate.

He said the CFTC would host a meeting on Feb. 26, after a similar event in London on Feb. 20.

Regulators likely will be pressed to explain their efforts to implement tough new capital requirements that were also called for by the Basel III international agreement.

Senate Banking Committee Chairman Tim Johnson, a Democrat, and top committee Republican Mike Crapo wrote to regulators on Wednesday asking them to consider the impact of new capital rules on community banks and insurance companies.

"In setting the new capital rules for the United States institutions, your agencies face a formidable task to carefully tailor the new rules to the unique risks of institutions while neither hampering lending nor undermining the strength of our financial system," the two wrote.

Lawmakers also are expected to debate the future of the Consumer Financial Protection Bureau, which has come under fire from Republicans who want to change its structure. Three Democratic senators on the committee strongly defended the bureau on Wednesday.

The other speakers at the hearing are Mary Miller, the Treasury Department's under secretary for domestic finance, Comptroller of the Currency Tom Curry, Securities and Exchange Commission Chairman Elisse Walter and consumer bureau Director Richard Cordray.

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