WASHINGTON, May 1 (Reuters) - 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.