Bipartisan Pair of Senators Push Fed for Tougher Big Bank Capital Requirements

Wall Street Journal

A conservative Republican and a liberal Democrat are urging regulators to hit the largest U.S. banks with stricter capital requirements than currently proposed, a clear sign that big banks have few friends on Capitol Hill when it comes to the issue.

Regulators risk missing their chance to set up the right incentives for banks to remain of manageable size, Sens. David Vitter (R., La.) and Sherrod Brown (D., Ohio) wrote in an eight-page letter sent Monday to Federal Reserve Chairman Ben Bernanke.

“Your proposed rule on capital standards misses a huge opportunity to address the too-big-to-fail issue” by setting capital standards too low, wrote the senators, both members of the Senate Banking Committee.

At issue is a so-called capital “surcharge” that international regulators agreed to levy against the world’s largest, most interconnected banks. The proposal would require about 30 banks -– including eight in the U.S. -– to hold between 1% and 2.5% extra capital as a percentage of their “risk-weighted assets.” The surcharge comes on top of a base 7% capital requirement for all banks, which international regulators agreed to in 2010.

The Fed, which helped negotiate the international agreement, hasn’t yet written final rules that would implement the surcharge on U.S. banks.

Megabanks like J.P. Morgan Chase & Co. and Citigroup Inc.have lobbied against the surcharge, saying it would set their capital requirements too high and crimp lending.

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Bipartisan Pair of Senators Push Fed for Tougher Big Bank Capital Requirements »