NEW YORK (Reuters) - European Union financial services chief Michel Barnier launched a volley at U.S. finance regulators on Friday, criticizing recent rule-making and calling for better cooperation across the Atlantic.
Barnier urged better cooperation between the United States and Europe, to ensure they could rely on each others’ supervisors for banks operating in both regions and give a clearer message to markets.
“If we choose to part ways, this will send the wrong signal to markets and to the rest of the world. It would increase the cost of capital, and reduce growth prospects,” he said, speaking before a business audience.
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.
While urging cooperation, Barnier was also direct in pointing out where he believed the United States is overreaching or lagging in global reforms.
Often addressing his audience in French, Barnier criticized a recent proposal by the U.S. Federal Reserve to keep international banks on a tighter leash.
The Fed in December 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.
“We are very concerned by this possibility of ring-fencing that would be imposed on foreign banks,” Barnier told reporters after his speech, speaking through an interpreter.
“We must solve it. Otherwise there will be reciprocal measures on the European side. And that’s what I want to avoid.”
The United States has traditionally relied on foreign supervisors to watch overseas banks, allowing them to hold less capital than their domestic counterparts.
The 2010 Dodd-Frank law to overhaul the U.S. financial landscape put an end to that policy, after the Fed was forced to extend hundreds of billions of dollars in emergency loans to overseas banks in the financial crisis.
Barnier also took aim at a lack of agreement over global rules that would rein in risky trades in the $650 trillion derivatives market.
The U.S. Commodity Futures Trading Commission has drawn criticism from business leaders as well as politicians over the aggressive way in which it thinks newly drawn-up derivatives rules should apply to companies abroad.
Global regulators meeting in New York last year failed to hammer out a deal on how to jointly supervise the lucrative derivatives market, and there were similar meetings in Switzerland and Brussels in the past weeks.
Foreign banks must stick to the same rules as their U.S. peers when dealing with a U.S. person - which includes companies - if their swaps trading volume exceeds $8 billion a year, according to the CFTC’s proposed rules.
“Expanding interpretation of home-grown rules to transactions that are already covered by equally solid foreign rules will only lead to legal conflicts,” Barnier said.
“It will create uncertainty, increase costs and push trade to less well regulated places. This is precisely what we want to avoid,” Barnier said.
Barnier sounded more confident on new capital rules for banks known as Basel III despite the fact that both the United States and the EU missed the January deadline for the start of a six-year phase-in of the new regime.
“I’ve just been confirmed that the commitments are going to be implemented within the time frame we had decided. That’s what Mr (Fed governor Daniel) Tarullo told me yesterday,” said Barnier, who met regulators in Washington on Thursday.
There could still be a short technical delay of a few months on both sides of the Atlantic, however.
Barnier also said America had not been aggressive enough in moving toward internationally agreed accounting standards.
The International Accounting Standards Board, which writes rules used in over 100 countries, has been working with the United States for a decade to align U.S. and international rules, with little progress to date.
Support for a switch has waned in the United States over concerns about the costs and a belief by many that U.S. Generally Accepted Accounting Principles, or GAAP, is superior because it puts more limits on corporate managers’ judgment than global rules.
“I continue to be disappointed by the slowness of the U.S. in moving towards internationally agreed accounting standards,” Barnier said.
Reporting by Douwe Miedema; Editing by Andrea Ricci and Tim Dobbyn