By Jonathan Spicer
NEW YORK Feb 22 The Federal Reserve's point
person on financial regulation wants an international proposal
for capital surcharges for large "systemically important" banks
to be completed over the next year.
In a wide-ranging speech on global financial supervision,
including the use of monetary policy as a stabilizing influence,
Fed Governor Daniel Tarullo on Friday also urged an
international designation of non-bank systemically important
organizations be completed over the next six months.
Tarullo - who is spearheading a unilateral U.S. clampdown on
foreign banks that has drawn criticism - said he backed
international cooperation on strengthening the oversight of
banks and other large financial institutions.
But he also argued that, given the complex assortment of
regulators globally, U.S. regulators should individually deal
with some troubling areas, such as money market mutual funds and
tri-party repurchase markets.
"At some point, it likely will be beneficial to rationalize
somewhat the overlapping, sometimes competing efforts of these
various international arrangements," he told the Cornell
International Law Journal Symposium.
"For the near to medium term, though, it is important to
have some principles for deciding upon the international agenda
that should govern the efforts of these arrangements as a
The largest countries of the world are working to make the
banking industry safer after the 2007-09 financial crisis, but
differences in the ways the financial industry operates across
regions have made this a difficult task.
Though he pointed to an array of areas still in need of
reforms, Tarullo held up so-called systemically important
financial institutions, of SIFIs, as a priority.
The international Basel Committee aims to clarify what firms
would qualify as SIFIs and decide what surcharge they would
face. Tarullo said this work was "nearing completion" despite
the lack of precedent to help regulators.
Meanwhile, it remains unclear which firms, such as insurers,
will be designated as non-bank SIFIs.
"It is important to take the time to evaluate carefully the
actual systemic risk associated with these companies, and to
understand the amount of such risk relative to other financial
firms, before fixing on a list of firms and surcharges," Tarullo
"But this seems to me a realistic goal over the next six
Writing new rules for firms that operate globally, however,
has at times proven difficult.
In December, the Fed launched a plan that would force
foreign banks to group all their units under a holding company,
subject to the same capital standards as U.S. holding companies.
The biggest banks will also need to hold liquidity buffers.
This month, European Union financial services chief Michel
Barnier criticized that plan for raising the possibility of
"ring-fencing," and urged better cooperation among regulators.
Turning to monetary policy, Tarullo, who rarely discusses
the topic publicly, said central banks need to assess the effect
their policies have on financial stability and, sometimes,
"adjust their policy decisions to take account of these
Using interest rates to battle financial excesses and price
bubbles has been a hotly debated topic since another Fed
governor, Jerome Stein, raised the idea in a speech earlier this
"To be clear, I do not think that we are at present
confronted with a situation that would warrant these kinds of
monetary policy action," Tarullo said.
But "it seems that now is a good time to discuss these
issues more actively, so that if and when we do face financial
stability concerns associated with asset bubbles backed by
excessive leverage, we will have a well considered view of the
role monetary policy might play in mitigating those concerns,"