April 29, 2013 / 5:56 PM / 6 years ago

UPDATE 1-German, UK banks slam US plans to toughen capital rules

* Germany’s BdB says will put Europe banks at disadvantage

* UK’s BBA says proposals too onerous, risks fragmentation

FRANKFURT, April 29 (Reuters) - German and British banking lobby groups on Monday slammed plans by U.S. regulators to toughen rules on foreign banks, saying they risk fragmenting banking supervision and causing major disruption to U.S. bank operations.

Germany’s banking association, BdB, said the push by U.S. regulators to tighten oversight of foreign banks would put European banks at a competitive disadvantage internationally.

The British Bankers’ Association (BBA) said imposing localised capital and liquidity requirements on foreign banks “will cause significant disruption to many foreign banks creating onerous and complex operational issues.”

In December, Federal Reserve Board Governor Daniel Tarullo said foreign banks should be required to hold as much capital as their U.S. counterparts, regardless of how their overseas parent companies are funded - a move that could trigger competition among regulators requiring banks to hold different levels of capital.

“If other countries followed the U.S. example, it would result in a dangerous fragmentation of financial markets. Different rules and standards would make markets more unstable and inefficient,” BdB managing director Michael Kemmer said in a statement.

“These new rules amount to a clear disadvantage when it comes to competing with U.S. banks on a global level.”

The United States has traditionally relied on foreign supervisors to regulate overseas banks and specify appropriate levels of capital, just as U.S. banks operating in the euro zone are judged on their worldwide capital.

The Fed’s measure could be particularly costly for Deutsche Bank, Germany’s flagship lender, and to a lesser degree for Britain’s Barclays Plc, because of their corporate structure.

Foreign banks would have to meet minimum capital and leverage ratios greater than those required under new Basel III global rules, the BBA said in its response to the proposals.

“The proposals may lead to the further fragmentation of banking supervision,” said Thomas Liew, a policy advisor for the BBA. That could “encourage regulators in other jurisdictions to seek their own proposals,” he said.

European Union Internal Market Commissioner Michel Barnier, the EU’s top financial regulator, has said the U.S. plan could lead to retaliation from other regulators.

As a governor on the Fed Board in Washington, Tarullo is a point person for financial regulation, but also votes at every policy-setting meeting of the U.S. central bank.

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