WASHINGTON May 1 Deutsche Bank AG
lashed out at a U.S. proposal to tighten oversight of foreign
banks that could force the German bank to hold far more capital
and which has drawn the ire of foreign regulators.
European bankers have been lobbying the Federal Reserve, and
Fed board member Daniel Tarullo in particular, to try to beat
back new rules that would force foreign banks to lump all their
U.S. subsidiaries under a single holding company.
Such entities would face the same capital requirements that
U.S. banks must meet, and the biggest banks would need to hold
liquidity buffers in their U.S. holding companies.
"The proposal, in its current form, would result in an
increase in the instability of the financial system," Deutsche
bank said in a letter, which was dated Monday and posted to the
Federal Reserve's website on Wednesday.
The German bank, whose balance sheet is the size of around
80 percent of the German economy, said the plan would lead to a
higher concentration of risk in U.S. banks and deviate from
globally harmonized regulatory regimes.
Deutsche unexpectedly announced it would raise 2.8 billion
euros ($3.69 billion) in equity capital this week, and sell 2
billion euros of hybrid debt to investors on top of that.
The plan should leave it sufficiently capitalized under "all
scenarios," Deutsche said, even if the Fed's proposed bank
safety rules aren't final yet. But analysts continued to worry
the German lender was borrowing too much.
The bank could face a 12 billion euro capital shortfall at
its U.S. Taunus unit, according to analysts at Espirito Santo
Investment Bank, while replacing the intra-group funding
Deutsche provides to the unit might be prohibitively expensive.
"Having to find independent funding for Taunus could likely
be so expensive that it negates its business model," the
Espirito Santo analysts said in a note.
Foreign banking groups and financial regulators have also
registered concerns in letters to the Fed, arguing the proposal
could create an inconsistent regulatory burden for foreign banks
and hamper banks' ability to react in a crisis.
The Fed said when it proposed the new rules in December that
the goal was to crack down on risks to U.S. markets posed by big
banks that do business globally.
The United States traditionally relied on foreign
supervisors to watch overseas banks, allowing them to hold less
capital than their domestic counterparts, on the assumption that
the parent company was sufficiently capitalised.
That policy ended after the Fed extended hundreds of
billions of dollars in emergency loans to overseas banks during
the financial crisis, which sparked fears foreign banks were not
sufficiently capitalized in the United States.
Officials from the German bank and from BNP Paribas
have met with Tarullo to talk about the proposal,
Reuters has reported.