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European bank heads meet with Fed’s Tarullo to discuss capital concerns

Daniel Tarullo

Daniel Tarullo

The heads of France’s BNP Paribas and Germany’s Deutsche Bank recently met with Federal Reserve Governor Daniel Tarullo to discuss his plan to hold foreign banks to the same capital standards as U.S. bank-holding firms.

Bankers in the euro-zone have said that the plan could add to the complications of an already inconsistent regulatory framework and could undermine the competitiveness of the region’s banks, Reuters reports.

“It’s an outrageous plan that will further balkanize the banking sector,” a French bank lobbying source said, according to Reuters. “Thank goodness we will have a banking union with the European Central Bank as chief supervisor in place soon. Tarullo’s proposal will be the first issue to be addressed.”

The U.S. has typically relied on overseas regulators to monitor foreign banks, but after the Fed issued billions of dollars in emergency bailout funds to the institutions after the financial crisis, the policy of allowing foreign banks to hold less capital than their U.S. counterparts came to an end.

Some analysts maintain that Tarullo’s proposal would force some European banks to inject fresh capital, thereby reducing profits, as well as their ability to compete against megabanks like JPMorgan Chase, Reuters reports

Michel Barnier, the European commissioner for internal market and services at the European Commission, said he mentioned the concerns during his meeting with Tarullo last month, in which he urged increased cooperation between the EU and U.S.

“If we choose to part ways, this will send the wrong signal to markets and to the rest of the world,” Barnier said, according to Reuters. “It would increase the cost of capital and reduce growth prospects.”

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